To help provide Illinois startups with the funding they need to transform into viable tech businesses, the state is now beefing up a multi-million-dollar investment fund.
Illinois State Treasurer Michael Frerichs announced that starting in 2019, $700 million will be available in the Illinois Growth Innovation Fund, a more than $400 million increase to what it was before.
The law (Senate Bill 3205), signed in August, calls for Frerichs to allocate up to 5 percent of the state’s investment portfolio into the fund, which is designed to attract and retain Illinois startups and deter them from heading to the coasts.
“The problem has been an access to capital, and that capital tends to come from out of state, which then encourages [startups] to leave the state,” Frerichs said. “If we want to retain more of our entrepreneurs here in Illinois, we need to have a better funding system.”
Frerichs said his office decided to increase the amount of funding because it allows the state to diversify its portfolio and invest in startups from a range of industries.
Once the money is available for use next year, the state selects local venture capital firms to pick and invest in specific startup companies on their behalf, though Frerich’s office said the specific firms haven’t been chosen yet.
“These are people with professional experience in this field,” Frerichs said. “We find that when an Illinois VC firm invests in U of I startups, they’re much more likely to stay here in the state and that’s why we’re trying to grow and work with the VC community here in Illinois.”
According to Frerich, the ILGIF will attract more than $2 billion in private investment dollars and create an estimated 60,000 new jobs.
"we’re looking to grow a technology industry in the state of Illinois."
The fund was originally established in 2002 by the Illinois Treasurer at the time, Judy Baar Topinka. Back then, it was called the Technology Development Account I and held $74 million. Northern Trust Global Advisors was selected to manage the fund, said Maura O’Hara, the executive director at the Illinois Venture Capital Association, and local startups that received investments included SpotHero, Sittercity and Diagnostic Photonics.
According to the state, TDA I created approximately 6,300 jobs and generated more than $150 million in private investments.
Later in 2011, lawmakers authorized a second round of the TDA, but Dan Rutherford was the treasurer at the time and did not act on the authorization, O'Hara said.
However, when Frerichs came into office in 2016, he used the $222 million in TDA II to establish the ILGIF as it stands today. Those dollars ended up being invested into companies like Tempus, Uptake, ShipBob and Farmer’s Fridge.
But during the gap, from 2011 to 2016 when the funds weren’t being invested, the state missed out on financing companies that have since had large exits, O'Hara said. One example is LearnCore, which raised funding in 2013 and 2015, and was acquired by Showpad this year for $50 million.
“Because Rutherford decided not to invest the money, the state actually wound up missing out on a really robust investment cycle while he was in office,” O’Hara said. “We viewed it as an incredibly high opportunity cost to be in and out of the market.”
But with the increase in funds to the state’s investment account, the state should be able to invest in a range of startups that have the ability to see big exits in the future. Treasurer Frerichs said investment returns made by the fund have been used to help reduce the state’s budget problems.
“Not only do we make money off of our investments, but we help companies grow and hire more people and then they in turn pay more in taxes,” Frerichs said. “An investment in in-state startups is a better investment than out-of-state ones, and we’re looking to grow a technology industry in the state of Illinois.”
