Illinois is betting on the state’s startups as vehicles to drive job growth and make money, even as it faces a months-long budget impasse.
But Illinois Treasurer Michael Frerichs is pretty sure it’s a good idea — after all, the last time the state poured millions of dollars into tech investments, it paid off.
The treasurer’s office is launching the next phase of a state program that began investing in local venture funds in 2002 and has reaped returns that surpass the rest of its portfolio.
This time around, the state will deploy $222 million to 15 to 20 funds over the next three years. That’s more than triple the $73 million invested through the original pool, which was called the Technology Development Account.
That first batch of cash was invested in 18 funds. By last June, the state said, it had reached returns of 6 percent from the technology fund, while the rest of the state’s investments returned about half a percentage point.
The Illinois Growth and Innovation Fund, which launched Monday with a town hall meeting drawing about 150 venture capitalists and supporters of the state’s technology economy, aims to build on the momentum of the first fund.
“We’re hoping not only to grow tech community here,” Frerichs told Blue Sky afterward. “We’re trying to grow the financial industry here as well.”
The state is working with Northern Trust-owned 50 South Capital to pick the investment funds that will get Illinois’ cash, none of which will receive more than 15 percent of the $222 million.
The state received nearly $27 million in capital gains and dividends from the first round of investments as of June 2015, according to the fund’s website. Frerichs also touted job creation: The program led to 3,900 new jobs in Illinois, he said.
Greg Rivara, Frerichs’ press secretary, acknowledged that some may be concerned about the tech investments, given the state’s budgetary woes. He pointed out that the often-discussed deficit is in the general revenue fund, whereas the money for these investment funds comes from a separate $13 billion pool.
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“These are dollars that their investments have matured, and we are investing them again,” Rivara said.
If the state earns returns from the next investments, it will invest them again, he added.
Bradley Dorchinecz, director and co-founder of 50 South Capital, said this round of the Illinois Growth and Innovation Fund will last 10 to 12 years.
Money may not trickle down to tech companies immediately, though. The state is planning to pick venture funds to invest in over the course of the next three years. Those firms may take even longer to put their capital into promising companies.
Dorchinecz’s 12-person investment team manages the state’s tech investments and chooses which funds receive capital.
“It takes four to five years, or even longer, to understand how those investments are doing,” Dorchinecz said. He said the length of the fund is “a good thing because it does take time for these companies to mature.”
The treasurer’s office launched a website for the Illinois Growth and Innovation Fund this week, an attempt to make information about the program easier to find, Rivara said. It lists members of the fund’s advisory board, including Illinois Venture Capital Association Executive Director Maura O’Hara ? and Illinois Chief Information Officer Hardik Bhatt ?.
The state approached its investments in venture funds in a similar manner to how other institutional investors act, said Bret Maxwell, managing general partner at MK Capital.
“I think, overall, it’s helped the venture community here,” Maxwell said. “It’s also provided a lot of support and funding for a lot of companies here.”
Chicago’s SitterCity, SpotHero and Diagnostic Photonics were among the startups receiving funding from the earlier fund.
The technology community across Illinois — and especially in Chicago — has evolved since the state’s first round of tech investments in 2002. There are more venture capital funds today, as well as accelerators that support startup growth, said Armando Pauker, a general partner at Apex Venture Partners, which participated in that first fund and plans to participate in the new one.
A requirement of participation in the Illinois Growth and Innovation Fund is that venture capital firms must commit $2 to local companies for every $1 the state puts in. Pauker said that should be “no problem” for local investors, who would invest money here anyway.
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