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IVCA-PAC Chairman's Letter

June 15, 2010

Dear IVCA Member:

Through your ongoing support of the IVCA-PAC, we have been able to continue educating elected officials and candidates on the importance and impact of venture capital and private equity.

Your PAC contributions go directly to elected officials and candidates who support policies that build a stronger private equity and venture capital industry in Illinois. One of our most effective outreach efforts has been the IVCA-PAC Legislator Meeting Series, generally lunches or dinners with a key legislator or two and a handful of IVCA members. We hosted 10 of these meetings with 12 legislators in 2009.

Consistent efforts to build educational relationships with legislators and other elected officials on a bi-partisan basis are helping to cultivate a growing number of elected officials who are knowledgeable about the importance of our industry to the Illinois economy. Sustained and repeated outreach to key elected officials annually is required.

To maintain a strong, proactive effort, our resources must be replenished annually at our targeted fundraising goal of $75,000. Our 2009 IVCA-PAC investor-member fundraising effort resulted in over 66% of our membership participating - still short of our 100% goal - but a significant increase over previous years. Like most PACs, IVCA-PAC does not spend all the dollars raised in any one fundraising campaign, keeping a reserve of money in order to respond to candidate contribution requests throughout the year.

In 2009, the IVCA-PAC contributed $40,033 to 18 legislators (including the cost of meals). Since the IVCA-PAC typically does not get involved in statewide races or open seat primaries, total contributions were lower in 2009 than in previous years. The PAC expects to be more heavily involved in contributing to candidates in the general election in 2010 when its contribution level should return to normal ($60,000 or more), disbursed to a larger number of candidates.

Despite the current challenging times for our member firms, you continued to show your support for the PAC in 2009 and we thank you. IVCA pledges to continue to contribute your money strategically to promote the interests of the private equity and venture capital industry in Illinois.

Keith Crandell

Chair, IVCA-PAC

ARCH Venture Partners

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IVCA-PAC Overview

Mission

To support the election of candidates to Illinois state, county and city offices who support the IVCA's programs, initiatives and philosophy – regardless of party affiliation.

Background

The Illinois Venture Capital Association (IVCA) is the only trade association that speaks to Illinois' elected officials, taxing and regulatory agencies on behalf of the local private equity and venture capital community. IVCA's affiliated political action committee – IVCA-PAC – remains a critical asset to IVCA's advocacy efforts by identifying, meeting with and contributing to Illinois candidates who are likely to support policies that will help strengthen the private equity and venture capital industry in Illinois.

As a result of this outreach effort, IVCA continues to expand its network of elected officials who understand the positive economic impact of a strong private equity and venture capital community in Illinois and who are open to hearing our views on legislation and regulations that affect our industry.

In the last several years, the judicious deployment of IVCA-PAC contributions to Illinois officeholders has made a meaningful difference in our industry's access to lawmakers in the state. It has also led to the passage of several pieces of positive legislation and modification of others, all important to our industry.

Maintaining and expanding our education and relationship-building efforts is an ongoing process that requires a strong PAC, sustained through ongoing IVCA-member contributions. The IVCA-PAC is funded entirely by IVCA member support. Membership dues cannot be used to fund it. The IVCA-PAC Board's goal is to have 100 percent of IVCA investor members contribute to the PAC on an annual basis.

IVCA investor members can contribute an unlimited amount to IVCA-PAC without restriction as individuals, partnerships, corporations or LLC's. Illinois law allows for unlimited contributions. Contributions to any PAC are a matter of public record.

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Legislative Review

Positive legislation that recognizes and supports strengthening private equity and venture capital investing in Illinois is important to the continued health of the state's private equity community. As important is preventing harmful legislation and amending laws with negative unintended consequences that affect our industry and that remains a key objective.

Over the past several years, however, working in Springfield to drive both proactive legislation and address problems posed for our industry from unintended consequences of enacted laws has been challenging to say the least. The state is in dire financial shape and there is a lack of consensus about how to equitably resolve the pressing budgetary and fiscal issues facing the state. Legislators remain focused on these issues and capturing their attention on other less pressing issues is becoming more difficult.

Efforts to increase revenue can often be enacted quickly without widespread review causing significant problems for the affected parties (e.g., elimination of the partnership deduction for PPRT). Additionally House leadership appears not to be very supportive of government programs to help bolster economic and employment growth in the state. A number of bills in this area continue to pass the Senate with overwhelming support only to die in the House (e.g., TDA II).

Add to this a sense from legislators that they must continually pass ethics reforms in many different areas ranging from pension funds to campaign contributions and we have another source of bills that can be enacted quickly without broad review. The result can be negative unintended consequences for some affected parties (e.g. pension ethics reform). This lack of transparency in Illinois' law-making process appears to be increasing as the state's problems become more visible and pressing and as the political arena becomes more partisan.

Given these challenges, success in the legislative arena will require continued diligence and patience. Almost all of IVCA's previous legislative successes have taken several years of effort -- 3 years to enact legislation to protect portfolio company information from FOIA access; more than 2 years of advocacy to enact legislation resolving the unworkable compliance requirements of the 2005 Sudan Divestment Act; over a year to enact legislation exempting investment partners from a long-standing requirement to pay a 1.5% personal property replacement tax (PPRT) on income derived from Illinois-based private equity funds.

In 2009, IVCA focused on 3 key issues:

Technology Development Account II – pro-active

IVCA has been an active supporter of TDA I helping to enact the authorizing legislation in 2003, with several key IVCA members serving on its Advisory Board. This program allows the Treasurer to invest up to 1 percent of Illinois' investment portfolio in venture capital and private equity. The program has excellent oversight and has been working well but the permitted funds are now allocated and no new investments can be made, prompting the Treasurer to propose a second fund (TDA II) in 2008. TDA II would make some program improvements and allow an additional 2 percent of the Treasurer's investment portfolio to be invested in venture capital. IVCA actively lobbied for TDA II in both 2008 and 2009 and was successful in helping to have that legislation passed unanimously out of the Senate in both years. Although many House members were supportive of the legislation, the bill stalled in the House Rules Committee both years.

IVCA has actively lobbied members of the General Assembly on the need for TDA II focusing in 2009 on House leadership (Currie and Lang). We have also continued to compile a wide variety of compelling advocacy pieces on the success of TDA I, the need for TDA II and how Illinois is lagging behind its neighboring states in encouraging local venture capital investment. Despite this lobbying effort, House leadership remains unsupportive.

Pension ethics reform – defensive

In 2008 and early 2009, IVCA actively and successfully worked with the major Senate sponsor of pension ethics reform to ensure that this legislation would provide a level playing field for pension fund investments in private equity and venture capital based on performance without establishing an unworkable selection process that would harm the state's public pension funds from investing in this asset class. However, the bill that ultimately passed did not reflect our input since it was written in the House without widespread review and response by affected parties (the bill was introduced, amended and passed by the House and then the Senate within 2 days and signed by the Governor within 24 hours).

Our key concern with the law is that it requires public pension funds to use the Illinois Procurement Code (or something substantially similar to it) when investing in fund of funds (because fund of fund managers must register with the SEC as investment advisors, fund of funds were included in the required use of the procurement code when pension funds select investment advisors or consultants).

IVCA worked for months with key Senate leadership and staff to draft an approved amendment to the ethics reform law for possible passage during veto session. The amendment was introduced and would have passed the Senate but House leadership indicated the House would not approve any ethics law amendments during veto session. IVCA has continued its efforts to pass the amendment in 2010.

PPRT Changes -- defensive

On July 15 2009, the General Assembly passed and the Governor signed legislation that among many other provisions would repeal the ability of a partnership or LLC filing a tax return in Illinois from deducting reasonable compensation paid to partners for services in computing the PPRT, unless that amount is actually paid out as a guaranteed payment for services. The law was to be effective for “tax years ending before 12/31/09.” This change was part of a budget implementation bill and was enacted with virtually no input from affected parties. (On 7/15, a seven-page energy shell bill passed earlier by the Senate was amended by the House to include the 250+ page budget implementation provisions, passed by both the House and the Senate without a single “no” vote and signed by the Governor).

Eliminating this key deduction would have meant that private equity and venture capital firms based in Illinois and/or actively pursuing investment opportunities here would have likely paid significantly more in PPRT. The 1.5 percent PPRT could have been applied to management fees paid on Illinois-based funds and compensation of all partners based on the activities of the fund, manager or firm in Illinois. These activities could have included time spent on Illinois-related activities such evaluating investment opportunities here.

IVCA worked with its members to better understand the potential ramifications of this tax change on our membership. We also reached out to other affected constituencies including legal and accounting firms and the Taxpayer Federation of Illinois to gauge their concern and potential interest in educating legislators about the severe negative impact this new tax would have on business investment in Illinois.

After intense opposition from the business community regarding the change which was not publicly discussed and was retroactive to the current tax year, the PPRT increase was repealed in October.

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IVCA Legislator Meeting Series

2009

Senate Republican Leader Radogno Lunch 3/2/09

House Representative Hamos Meeting 3/9/09

Senate President Cullerton, Senator Harmon Lunch 6/5/09

House Republican Leader Cross Lunch 6/22/09

House Deputy Majority Leader Lang Lunch 9/29/09

House Majority Leader Currie Dinner 10/20/09

Senator Raoul Lunch 11/24/09

Senators Bond and Frerichs Lunch 12/1/09

Senator Kotowski Lunch 12/8/09

Representative Burns Lunch 12/15/09

2008

Senator Harmon Lunch 1/16/08

Senators Harmon, Kotowski and Wilhelmi Lunch 4/14/08

Senators Raoul and Wilhelmi Dinner 4/28/08

House Candidate Burns Lunch 4/30/08

House Majority Leader Currie Dinner 9/30/08

Senator Harmon Lunch 12/15/08

2007

Treasurer Giannoulias Dinner 1/16/07

Representative D. Miller Lunch 3/9/07

Chicago Treasurer S. Miller Meeting 4/04/07

Senators Harmon, Bond, Raoul Seminar 10/23/07

Senators Harmon, Raoul, Schoenberg and Bond, Seminar 12/10/07

Representative Miller, Treasurer Giannoulias

2006

Treasurer Topinka Dinner 1/4/06

Senators Schoenberg, Harmon Dinner 1/9/06

Senator Clayborne Dinner 3/13/06

Senator Raoul Lunch 8/30/06

Senator Harmon Fundraiser 10/6/06

Representative Turner Lunch 10/10/06

Senator Cullerton Dinner 12/13/06

2005

Representative Cross Dinner 2/21/05

Representative Granberg Dinner 6/22/05

Senator Harmon Fundraiser 10/12/05

2004

Senator Harmon Fundraiser 4/8/04

Senator Watson Dinner 6/14/04

Senator Dillard Dinner 12/1/04

Senator Rauschenberger Dinner 12/15/04

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2009 IVCA-PAC Contributions to Elected Officials

House Republicans House Democrats Rep. Leader Cross $5,000 Speaker Madigan $5,000 Cross – 6/22 lunch 565 Maj. Leader Currie 1,000 Asst. Rep. Leader Beaubien 500 Asst. Maj. Leader Lang 1,000 Total $6,065 Lang – 9/29 lunch 394 Rep. Will Burns 1,000 Burns – 12/15/09 lunch 136 Rep. Nekritz 500 Senate Republicans Total $9,030 Minority Leader Radogno $5,000 Radogno – 3/2 lunch 502 Senate Democrats Min. Caucus Whip Dillard 1,000 President Cullerton $6,000 Total $6,502 Cullerton – 6/5 lunch 482 Sen. Raoul 1,000 Raoul – 11/24 lunch 167 Sen. Bond 1,000 Statewide Offices Bond – 12/1/09 lunch 67 Atty. Gen. Madigan $1,000 Sen. Frerichs 1,000 Total $1,000 Frerichs – 12/1/09 lunch 66 Sen. Kotowski 1,000 Kotowski – 12/8/09 lunch 154 Sen. Heather Steans 500 Sen. Harmon 5,000 Sen. Schoenberg 1,000 Total $17,436 Total Cash Contributions $37,500 Total Lunches $2,533

IVCA-PAC Contributors

Major Contributors – have made over $10,000 or more in contributions to IVCA-PAC over the past three years

Adams Street Partners

ARCH Venture Partners

Duchossois Technology Partners

GTCR Golder Rauner

Madison Dearborn Partners

Mesirow Financial

New World Ventures

Thoma Bravo

Willis Stein & Partners

Wind Point Partners

Other Important Contributors

Apex Venture Partners
ARCH Development Partners
Beecken Petty O'Keefe & Company
CapX Partners
Ceres Venture Fund
Chicago Growth Partners
Dunrath Capital
Edgewater Funds
First Analysis
Frontenac Company
Greyrock Capital Group
Hopewell Ventures
IllinoisVENTURES
KB Partners
LaSalle Capital Group
LaSalle Investments
Linden LLC
Machrie Enterprises
Midwest Venture Partners
MK Capital
Motorola Ventures
MVC Capital
NewEllis Ventures
Northern Trust Global Advisors
OCA Ventures
Origin Ventures
Portage Venture Partners
Prairie Capital
Prism Capital
Sterling Partners
Svoboda Capital Partners
Wynnchurch Capital

IVCA-PAC Contributors - 2009

Adams Street Partners	$4,000		Madison Dearborn Partners	5,000
Apex Venture Partners	2,500		Mesirow Financial	5,000
ARCH Venture Partners	5,000		Midwest Venture Partners	100
Beecken Petty O'Keefe & Company	1,500		MK Capital	2,500
CapX Partners	500		Motorola Ventures	500
Ceres Venture Fund	500		MVC Capital	750
Chicago Growth Partners	500		NewEllis Ventures	500
Duchossois Technology Partners	5,000		New World Ventures	5,000
Dunrath Capital	1,000		Northern Trust Global Advisors	100
Edgewater Funds	250		OCA Ventures	500
First Analysis	500		Prairie Capital	1,200
Frontenac Company	2,500		Prism Capital	1,000
GTCR Golder Rauner	5,000		Sterling Partners	3,000
Hopewell Ventures	250		Svoboda Capital Partners	750
LaSalle Capital Group	1,000		Thoma Bravo	5,000
LaSalle Investments	500		Willis Stein & Partners	5,000
Linden LLC	1,200		Wind Point Partners	3,500
Machrie Enterprises	3,600		Wynnchurch Capital	500
			Total	$75,200

Statement of Activities and Changes in Net Assets

For the Year Ended December 31, 2009

Support and revenue
Contributions	$71,700*
Program services
Contributions to candidates	37,500
Legislative dinners	2,533
Total program expenses	40,033
General and administrative
Accounting fees	2,000
Office expense and bank charges	505
Total general and administrative expenses	2,505
Total expenses	42,538
CHANGE IN UNRESTRICTED NET ASSETS	29,162
UNRESTRICTED NET ASSETS AT BEGINNING OF YEAR	52,733
UNRESTRICTED NET ASSETS AT END OF YEAR	$81,895

*Additional contributions for the 2008 fundraising campaign were received in early 2009

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Illinois Venture Capital Association Political Action Committee

2010 IVCA-PAC Contribution

IVCA Member Firm _______________________________________________________

Note that contributions to any PAC are a matter of public record

This contribution will be attributed to the firm unless you prefer that it be attributed to one (or more) individuals. If the contribution is to be attributed to an individual(s), please list the name(s) below:

Dollar Amount	Names of Individuals Contributing
$______________________	______________________________________________________________
$______________________	______________________________________________________________
$______________________	______________________________________________________________
$______________________	______________________________________________________________
$______________________	______________________________________________________________
$______________________	______________________________________________________________

Check(s) should be made payable to IVCA-PAC and mailed to:

Under Illinois campaign laws, IVCA members can contribute an unlimited amount to IVCA-PAC without restrictions as individuals, partnerships, corporations or LLC's. Contributions to any PAC are a matter of public record. Membership dues cannot be used to fund the IVCA-PAC, thus the IVCA-PAC depends solely on IVCA member contributions.