State set to invest in technology $50 mil. fund will back venture capital to launch tech firms

After five years in incubation, the Illinois TechnologyDevelopment Fund, a $50 million taxpayer-funded boost aimed atlaunching tech companies and creating jobs in the state, finally waspushed out of the nest at a press event called by state TreasurerJudy Baar Topinka.

The Illinois Technology Development Fund "is open for business,"she said.

Topinka said the state faces "minimal risk" in investing otherwiseconservatively invested funds in venture funds with Illinois tieswhile enjoying "auxiliary benefits," including creation of companiesand jobs and retaining bright graduates.

"Nothing from nothing is nothing. Here we have something," saidthe treasurer.

Under state law, less than 1 percent of the state's $8 billioninvestment portfolio, which typically includes corporate paper,Treasury bills, economic development programs and certificates ofdeposit in banks, can be invested in the Technology Development Fund.No more than 10 percent of the money can be invested in an individualventure fund, which in turn will help finance start-up businesses,primarily in the tech sector.

The fund is expected to invest in four to five venture funds overthe next year and 15 to 20 over the next three years.

All proposed investments have to be approved by an externaladviser, Robert Morgan, director of private equity at Northern TrustGlobal Advisory Services, and a board that includes representativesfrom major Chicago area VC funds. Topinka said the state preventspotential conflicts of interest by prohibiting these VCs fromreceiving the investments.

Topinka believes the fund will help reverse the state's "braindrain" to Silicon Valley and the East Coast. She said Illinoisschools educate top talent, "yet when they graduate, there is notenough venture capital around" to keep them working in Illinois.

She said the new program will help Illinois become "the SiliconValley of the Midwest."

State Sen. Jeffrey M. Schoenberg, the Evanston Democrat whosponsored legislation creating the fund, said he hoped that theprogram would give Illinois biotechnology a boost, especiallycontroversial stem cell research.

Ed Condon, who is administering the fund and is former treasurerof Sears, Roebuck and Co., said the private equity funds in which thestate invests will be tracked closely to assure that they areinvesting in Illinois companies.

Steve Beitler, senior managing director of Chicago-based DunrathCapital and immediate past chairman of the Illinois Venture CapitalAssociation, said, "The state is making a wise investment bydiversifying its portfolio. Venture capital provides excellentreturns. There is a good chance here for the state to make some moneywhile developing the economy."

Martin Noven, deputy chief of staff for law and policy in thetreasurer's office, said the state over the next three years willinvest $50 million in venture funds.

He said the state is aiming to send out the message toentrepreneurs, who might be considering leaving the area, that statefunding is available for them in Illinois.

fund managers

The $50 million taxpayer-financed Illinois Technology DevelopmentFund will be managed by Robert Morgan, director of private equity atNorthern Trust Global Advisory Services, and a board that includesrepresentatives from major Chicago area VC funds.

Ellen Carnahan, managing director, William Blair Capital Partners;Michelle Collins, managing director, Svobada, Collins LLC; KeithCrandell, managing director, ARCH Venture Partners; Aimee Daniels,senior vice president, LaSalle Bank; Robert Finkel, managing partner,Prism Capital Corp.; Wilbur Gantz, chairman and chief executive,Ovation Pharmaceuticals Inc.; Oliver Nicklin, president and chiefexecutive, First Analysis Corp.; Carl Thomas, managing partner, ThomaCressey Equity Partners.

Also, David Baker, vice president of external affairs, IllinoisInstitute of Technology; Indrani Mukharji, executive director oftechnology transfer, Northwestern University; Duane Stucky, vicepresident for financial and administrative affairs, Southern IllinoisUniversity; Robert Rosenberg, assistant vice president forpartnerships and technology, University of Chicago, and DavidChicoine, vice president for economic development and corporaterelations, University of Illinois at Chicago and at Urbana-Champaign.