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SB 107 – Technology Development Account II (TDA II)

Builds upon successful TDA I. Helps meet the need for new venture capital investment in Illinois without new public funding or any future spending liability.

The Technology Development Account II (TDA II) builds upon the success of TDA I, which was authorized by legislation in 2003.  Like TDA I, TDA II will provide much-needed venture capital to the high technology sector in Illinois by:

• Allowing up to 2% of the Treasurer’s investment portfolio to be invested in venture capital funds (up from 1% in TDA I); and
• Establishing a new public/private partnership, with capital from private institutional investors being invested side-by-side with the Treasurer’s capital.  The public fund (TDA II a) would be housed in the Treasurer’s Office, holding money from the State’s investment portfolio; the private tandem fund (TDA II b) would be held outside the Office.  Both funds would be managed by professional investment advisors.

The need for increased venture capital (VC) funding in Illinois has never been more pressing, especially for local venture capital firms that provide early stage funding for local companies. This trend of tightening of local VC funding can be attributed to several factors, including local private equity firms moving out of VC funding into buyout only; large local large funds of funds making more investments on the coasts (which can better accommodate these large investments); local small investors now using only fund of funds that are not as focused on the region; and pension funds either not investing in venture capital at all or having such large blocks of capital to invest that they can effectively only invest in large (primarily coastal funds) or fund of funds.  The ability to invest up to 2% of the state’s investment portfolio under TDA II and its new public/private partnership can help reverse this trend.

The public/private partnership component of TDA II can help bring critical new participants into venture capital investing in the state in a more active way.  Historically, local corporate support of company formation through venture capital investing has been a key variable in building a thriving private equity/venture capital industry in a state, leading to the creation of new companies, increased employment and economic growth.  Comparatively speaking, Illinois corporate investment in venture capital has been low.  TDA II can help encourage new corporate venture capital investing by providing matching funds as well as a successful investing model with a good governance infrastructure,

TDA I funding is coming to a close -- all of its funding (approximately $75M) has been committed, creating the need for new authorizing legislation.  In addition to the increased allocation to venture capital and new the public/private partnership, TDA II will improve the effectiveness of the program by: (1) increasing the percentage of TDA investment in any one fund to 15% (from the current 10%) which should help cultivate smaller Illinois VC funds that tend to concentrate their investments in Illinois (in effect, becoming the anchor investor that provides the base to attract other investors); (2) providing more flexibility regarding the amount of money that may be invested in any one year (TDA I can only invest 1/3 of available funds), better capitalizing on good investment opportunities as they arise; and (3) expanding the pool of quality investments by allowing investments in non-Illinois-based funds but with a track record of investing in Illinois-based companies.

TDA I has had a positive impact on economic and job growth in Illinois that will be continued and expanded upon under TDA II.  As of 9/30/2010, TDA I has deployed $31M to 17 Illinois-based funds. These TDA I-recipient funds have deployed additional investment in 37 IL companies totaling $115M.  This direct investment by TDA I-recipient funds has attracted an additional $450M from other local and out of state funds for total local investment of more than $565M in 37 IL companies. With this increased investment, these companies have created over 2,664 new jobs in Illinois.

May 2011