Illinois Treasurer's Office Proposes Second Technology Development Fund With Potential For $100 to $150 Million in New Venture Capital Investments

Illinois Treasurer's Office Proposes Second Technology Development Fund With Potential For $100 to $150 Million in New Venture Capital Investments

March 25, 2008

CHICAGO - TDA II would both increase the percentage of the state's investment portfolio allowed to be invested in technology-focused private equity/venture capital funds from 1% to 2% and seek capital from private institutional investors that would be invested side-by-side with the Treasurer's capital.

A strong supporter of TDA I, IVCA has endorsed the TDA II proposal and will be actively working to help enact authorizing legislation this year.
 
Recognizing the need for increased capital to the high technology and venture capital sectors in Illinois, IVCA actively lobbied for legislation creating TDA I in 2003.  This legislation allowed the State Treasurer to diversify the Treasurer's investment portfolio by investing up to 1% of that portfolio with Illinois-based private equity/venture capital funds focused on technology development.  Several IVCA members serve on the Advisory Board to TDA I and several other IVCA member firms have received funding (Advisory Board members are prohibited from receiving TDA funding).

This innovative investment program serves as a model for successful and prudent state investment in private equity and venture capital.  It required no new public funding nor does it pose any future spending liability.  Both the current and former Treasurer have maintained good governance criteria for the Fund and are assisted by an outstanding, professional Advisory Board comprised of leading members of the private equity/venture capital community and academics.  Additionally, it is well served by an experienced, local investment advisor - Northern Trust.  

The Fund currently has commitments for about 2/3 of its allotted investment dollars (approximately $75M) and expectations are that the remaining funds available will be fully committed by the end of this year.  As of March 30, 2008, TDA I has made commitments to 15 funds, all of which are located in Illinois.  To date, these funds have invested in almost 80 companies.  Close to one-third of these companies are headquartered in Illinois.  These companies compete in a wide range of information technologies, life sciences and other technologies that are so critical to growing the technology sector in the State.

To maintain the momentum of TDA I, the Treasurer has proposed new authorizing legislation to provide a new larger pool of private equity/venture capital investment dollars by:
  • establishing a new public/ private partnership investment pool that includes capital from both the State Treasurer's investment portfolio as well as from a number of private institutional sources, in particular, corporations that have a logical interest in creating a robust venture capital and high technology sector in the State; and
  • increasing the amount of funds in the Treasurer's investment portfolio to be allocated from 1 to 2% in the new expanded TDA II.  Although the Treasurer's investment portfolio size can be expected to change over the next several years, it is reasonable to assume that an additional 2% of the portfolio would equate to roughly $100 - $150 million in the near term.

In total, between the Treasurer's capital and private capital, it is expected that TDA II will be between $150 million and $200 million.

TDA II would differ slightly from TDA II in a few other respects: (1) to expand the pool of quality investments, TDA II would be able to invest a small portion of its capital in funds based outside of Illinois, but with a track record of investing in Illinois companies; (2) TDA II would be able to invest up to 15% of a fund (as opposed to 10% currently) so that it could help cultivate smaller Illinois VC funds that tend to concentrate their investments in Illinois (becoming in effect the anchor limited partner which would provide the base to attract other limited partners); and (3) TDA II would have more flexibility in the amount of money it is permitted to invest in a given year (TDA I is currently restricted to making annual investments equal to one-third of the total Fund; this restriction has been problematic in certain years when the markets are robust).

 The Treasurer's Office, Advisory Board, and a Due Diligence Advisor would continue to direct the affairs and investment decisions of the funds.

The legislation is expected to be introduced in early April in the Senate.  Working with the Treasurer's Office, IVCA will begin educating both House and Senate members about the value to the state of establishing TDA II.  We will likely be asking IVCA members to help in this effort.  Stay tuned...