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Frerichs wants to boost state tech investments

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Illinois

* Illinois Radio Network…

The state has $12 billion to $15 billion to invest at any moment, and since 2005, the law has allowed 1 percent of that to be invested in Illinois-based high-tech companies. In 2011, the limit became 3 percent, but the actual amount has never exceeded 1 percent.

State Treasurer Mike Frerichs says now he’s going to try. “We’ve reached out to the Illinois Venture Capital Association, we’ve reached out to people who serve on advisory boards, and they’re very interested in working with us and we are working on RFP (request for proposals) right now to make sure we’re making those investments here in Illinois that not only get us a good rate of return, but also help grow our tech and biomed sector in this state,” he said.

He says venture capital investors from the coasts often urge startup companies here to move, whereas the state of Illinois would urge them to stay.

The amount of state funds currently invested in the Technology Development Account is $53 million.

That current amount is less than a half a percent. We’d be looking at $450 million if he went to 3 percent of $15 billion.

Thoughts?

posted by Rich Miller
Tuesday, Apr 14, 15 @ 11:44 am

Comments

Established companies would be ok, but not a penny in venture capital. No one in the state would know how to pick and manage any VC work.

Comment by Plutocrat03 Tuesday, Apr 14, 15 @ 11:47 am
Maybe I don’t understand what is going on, but why isn’t the State using this money to pay the bills instead of investing in a business that isn’t making any money?

Comment by Huh? Tuesday, Apr 14, 15 @ 11:47 am
Perhaps the guy in the Mansion might know a thing or two about this kind of stuff. Get him off his “I hate unions” perseverations.

Comment by VanillaMan Tuesday, Apr 14, 15 @ 11:53 am
Gianoulis tried to do this years ago and it was rejected. These are risky investments.

Comment by Democrowhat Tuesday, Apr 14, 15 @ 11:54 am
I’m not big on a state venture capital fund. Too much like the unaccountable corporate/crony welfare we already dole out to produce press releases for politicians,

I’d prefer to be one step removed, utilizing directed deposits or loan guarantees to leverage private sector lending. Let someone outside government make the actual loan decisions.

Comment by Wordslinger Tuesday, Apr 14, 15 @ 11:55 am
Don’t get fancy Frerichs. It’s not your money.

There’s Venture Capital for start ups — too risky for these funds.

Then there’s VC for milking established companies and flipping them — maybe a little safer, but why would that be good public policy?

Comment by walker Tuesday, Apr 14, 15 @ 11:57 am
@Wordslinger: Yes. Modestly expanding and leveraging private sector lending, even better.

Comment by walker Tuesday, Apr 14, 15 @ 12:02 pm
The danger with the Treasurer’s office has always been using it as a launch platform for higher office. That brings a certain jaundice to my eyes.

Comment by walker Tuesday, Apr 14, 15 @ 12:07 pm
I’ve heard that the return on the current TDA is better than the overall average. Not sure if that’s true but this is certainly an idea worth exploring. Makes more sense than being screwed by hedge funds that charge 2 and 20 and deliver risk adjusted returns less than index funds.

Comment by 46 and2 Tuesday, Apr 14, 15 @ 12:07 pm
Access to VC for female owned tech start-ups is dismal. As more women choose to drop out of the technology fields, Illinois has a chance to change this trend while broadening our technology base by attracting qualified women to our state.

Comment by #5 Tuesday, Apr 14, 15 @ 12:08 pm
Increase u of i tech sector to help them get private business for their cloud computing ventures. They could even give local business large price breaks like we do with instate tutution.

Imagine being able to offer low cost cloud computing to businesses that move HQ to illinois or are already here….

Comment by Ghost Tuesday, Apr 14, 15 @ 12:20 pm
I’m with word, I don’t think the Treasurer’s office should be gambling on businesses they don’t understand.

Comment by Anonymous Tuesday, Apr 14, 15 @ 12:22 pm
Wordslinger:

You are correct, and that is in fact how the General Assembly established the program.

The Treasurer’s office does not pick the individual companies to invest in, a professional investment firm does. This program has been around since 2003, and according to the business community performs well.

It is also worth noting that for every dollar in state investments put up, the private sector matched it with $17.50, so the idea we are gonna get stuck with a bunch of lemons seems unlikely. From the IVCA:

Since its inception in 2003, investments by the Illinois Treasurer’s office in venture capital and private equity funds has resulted in over 3,500 jobs in 60 private Illinois companies. This is a 117% increase in jobs since the time of investment in these companies. These employment gains follow a 90% increase in companies’ revenue since initial investment.

In 2003, the State Treasurer was authorized to commit up to 1% of the State’s investment portfolio into venture capital and private equity firms located in Illinois with a goal of investing in Illinois growth companies. Managed by Northern Trust Global Advisors, the state’s investment in 14 venture and private equity firms has resulted in tremendous job creation for the state thanks to a 17.5 times match of private investor dollars.

That’s 3,500 jobs created without a penny of appropriations from GRF or any other public fund. That is a pretty good ROI.

Comment by Yellow Dog Democrat Tuesday, Apr 14, 15 @ 12:45 pm
Rutherford did this a few years ago as well on the I-88 corridor. I believe it was successful. It’s a good idea.

Comment by A guy Tuesday, Apr 14, 15 @ 12:46 pm
I work in a large state agency in their IT department. We have mainframe applications that are almost 40 years old and are in need up rewrites to newer technologies. I wish there was some way to invest in this instead some risky venture.

Comment by BJM Tuesday, Apr 14, 15 @ 1:07 pm
One problem with “success stories” on such funds is that you can’t prove a negative, i.e., what would have happened if the state did not invest?

If a project is worthy, then there should be no shortage of investors. If the state is the only one interested, watch out!

Comment by gopower Tuesday, Apr 14, 15 @ 1:10 pm
gopower -

The state is not the only investor. Every state dollar was joined by $17.50 from the private sector.

Comment by Yellow Dog Democrat Tuesday, Apr 14, 15 @ 1:21 pm
BJM:

Unfortunately, when it comes to GRF, technology upgrades are the first thing cut.

But these are not GRF appropriations.

Maybe your agency should get itself inserted into the capital bill?

Comment by Yellow Dog Democrat Tuesday, Apr 14, 15 @ 1:23 pm
I’m getting a vision of “Shark Tank”, only with IL pols as the judges…..

“My Eyes, My Eyes…………..”

Comment by Judgment Day Tuesday, Apr 14, 15 @ 1:31 pm
Ok, being serious here…..

The State of Illinois needs to implement what is known as SBIR grants. SBIR = Small Business Innovation Research Grants.

Here’s a link to how these operate:

http://www.cringely.com/2010/09/12/how-much-is-enough/

Comment by Judgment Day Tuesday, Apr 14, 15 @ 1:49 pm
Tech companies, especially young ones, carry such high risk for so many reasons, among them being the immense hype that gets put into them thereby boosting their perceived worth. For me it would all depend on how much outside investment there would be for every state dollar spent. We don’t need to go searching for pipe dream fixes chasing the “next big thing” in the tech industry (see 90’s Tech Bubble) so we can pay our bills.

Comment by The Muse Tuesday, Apr 14, 15 @ 1:56 pm
Judgment Day, that is truly funny-and kinda scary.

To the Post: I’m strongly opposed. Primarily, the track record from an investment perspective is not that great-barely above median since inception. The purpose of VC investing (and the Treasurer’s office, btw) is not job creation, so those statistics are interesting but irrelevant.

The IVCA is primarily composed of second-and third-tier firms that often have trouble raising funds and have historically looked to the public sector to assist them with their private problem. Their keen interest is another red flag, as their members would almost exclusively derive the benefit from this deal.

Northern Trust is a fine Illinois institution with many strong investment offerings. I don’t think you will find one investment professional of stature who would put them on a list of elite VC pros, though.

Finally, where is the evidence of an unmet demand for $400m in new VC funding in IL for IL firms that the State must address? And if there is and there are great funds out there, shouldn’t the State pension systems, all better equipped to evaluate and manage VC investments, get them first?

Bad idea, driven by constituency politics. Don’t do it.

Comment by Arthur Andersen Tuesday, Apr 14, 15 @ 1:58 pm
It is probably a good investment…Paying our bills is a good investment as well…priorities count.

Comment by Outsider Tuesday, Apr 14, 15 @ 2:22 pm
There is no direct investment of companies, it’s a fund of funds approach so the idea that the Treasurer is hand picking which terrible companies to give money to is overblown.

The first TDA was authorized by the GA and then implemented when Topinka was Treasurer, that fund is fully invested and matured and has been for a while. Giannoulias tried to get the authority to get a second fund going but that authority didn’t come from the GA until Rutherford became Treasurer but they never actually got the fund off the ground.

The authority exists, I’d like to see it put to good use. If these things have a 3-4 year investment cycle and a 7-8 year life cycle I’d prefer to see two staggered funds on an alternating calendar so there is a continuous stream of investment through that sector.

Comment by The Captain Tuesday, Apr 14, 15 @ 2:58 pm
With all due respect Arthur Anderson, the investment return for technology development accounts is a lot better than treasury bills, which is where the money will stay if it isn’t put into TDA.

Secondly, if you honestly believe it isn’t the role of state government to grow jobs in the private sector, you are in the minority.

As The Captain notes, the GA expanded investment authority under Rutherford, I believe it actually passed unanimously.

Finally:

=== The IVCA is primarily composed of second-and third-tier firms that often have trouble raising funds and have historically looked to the public sector to assist them with their private problem. ===

I am sure that GTCR and JB Pritzker, both of whom are IVCA members, have a different view.

In fact, I am certain GTCR has a different view, since the IVCA annual award is named for the company’s founder and the governor’s mentor.

Comment by Yellow Dog Democrat Tuesday, Apr 14, 15 @ 3:41 pm
YDD, with respect:

Comparing the TDA returns to T-Bills is interesting, as one is a substitute for the other. However, just like we don’t evaluate the success of 3rd grade students by comparing them to 1st graders, the only legitimate way to evaluate the TDA returns is against similar VC funds. By the Treasurer’s own reports, that performance is average. Don’t we want more than average?

Next, I described the IVCA as mostly comprised of second or third tier firms. I was incorrect in one respect, from viewing their website, which does not provide a public listing of members. It’s really mostly comprised of law firms wanting the business of those second and third tier VC firms. Why don’t you give us a link to the membership directory and let folks determine if GTCR and JB are outliers?

Oh, and I never said that the State shouldn’t create private jobs. I merely opined that it’s not the job of the Treasurer, R or D, to run a job creation program through a VC fund.

It seems you’re much better at slinging things other than “Words”, slinger.

Comment by Arthur Andersen Tuesday, Apr 14, 15 @ 6:36 pm
And I have no idea how that last sentence ended up in my post. #BloggingByPhone

Comment by Arthur Andersen Tuesday, Apr 14, 15 @ 6:38 pm