Venture funds to get $50 million from state ….. Illinois

Illinois Treasurer Judy Baar Topinka kicked off a long-awaited program Tuesday to invest $50 million of state money in venture capital funds, promising the effort will create jobs while providing a good return.

The Technology Development Fund, championed initially by former Gov. George Ryan more than four years ago, is part of efforts to make Illinois more attractive to entrepreneurs and venture capitalists.

By Barbara Rose
Tribune staff reporter

http://www.chicagotribune.com/business/chi-0408040231aug04,1,264121.story?coll=chi-business-hed

It represents a milestone for a state that has been slow to embrace the idea of risking taxpayer money to promote so-called new economy initiatives.

It also reflects the ambition of the state’s top banker, who also is state Republican Party chairwoman, and the growing political clout of the Illinois Venture Capital Association, which lobbied hard for the program two years ago.

"This is a long time in coming," said state Sen. Kirk Dillard (R-Hinsdale), who sponsored the enabling legislation in 2002 with state Sen. Jeffrey Schoenberg (D-Evanston), then a state representative.

In a separate effort last month, University of Illinois officials raised a $20 million fund from private individuals to invest in companies aiming to commercialize technology developed at the U. of I. and other research centers.

Topinka said Tuesday that Illinois boasts some of the country’s best universities, yet some of its brightest students and professors leave the state because they can’t get financing to develop their businesses.

"It’s caused something we call the `brain drain,’" she said.

She acknowledged the state’s new fund is small compared with initiatives by other states that are trying to play catch-up with such regions as California’s Silicon Valley and Boston in competing for high-tech money and talent.

"It’s not voluminous," Topinka said. "It’s the first shot out of the box."

The new fund is unusual in that it invests money from the state treasury, but it is modest compared with those of neighboring states that are relying mainly on public-private initiatives.

For instance, Indiana raised $73 million last fall from state pension funds, universities and corporations to invest in venture funds that focus on life sciences. The State of Michigan invested in four new venture funds that are raising a combined $100 million in private money.

Ellen Carnahan, managing partner at Chicago’s William Blair Capital Partners and a member of the Illinois fund’s investment review board, called the new fund "a good start."

"It’s always better to get started smaller to see if you can get a program to work well and have some success from it," she said.

The new fund will be managed by Northern Trust Global Advisors Inc. in Chicago, which sources said was picked from four finalists, including Chicago’s Mesirow Financial.

Investments must be approved by a 13-member board of university officials and business people, including venture capitalists.

To minimize risk, the fund will not invest directly in companies but in venture funds based in Illinois or operating here. The state’s investment will be limited to no more than 10 percent of a fund’s assets.

Topinka said the state will invest a total of $50 million over three years, although, by law, her office can earmark as much as 1 percent of the state’s portfolio for venture capital. That portfolio fluctuates between $6 billion and $10 billion and is invested in bank certificates of deposit, bonds and other conservative investments.

Edward J. Condon Jr., a former treasurer of Sears, Roebuck and Co. who is administering the new fund, noted that private equity investments historically outperform the stock market.

"If the treasurer got her money back, she will have provided jobs and started companies that pay taxes," he said. "Anything over and above that is absolutely wonderful."

There is no requirement that the funds invest solely in Illinois companies, because funds that are limited geographically perform poorly compared with those that can range freely, officials said.

"We’re trying very hard to balance the economic development interests and the rate of return," said Martin Noven, Topinka’s deputy chief of staff.

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