For entrepreneurs and start-ups, it seems the search for capital is never finished, whether that means turning to friends and family for money or leveraging technology for crowdfunding. In Illinois, there is a significant amount of capital – about $220 million – that is available solely to Illinois businesses, particularly those in the high-tech space. As a way to promote business innovation, the Illinois government formed the Illinois Growth and Innovation Fund (ILGIF), which in essence serves as a pool of money that is invested in such a way as to “attract, assist and retain quality technology businesses in Illinois,” according to the ILGIF website.
How Does the ILGIF Work?
As stated by ILGIF, the program’s goals are to:
- Deliver a strong investment performance for Illinois
- Drive economic development for Illinois
- Foster a more connected, inclusive and engaged entrepreneurial community in Illinois
That said, start-up companies cannot access funds directly from the state. Rather the state, in a public bidding process, selected 50 South Capital Advisors to serve as the ILGIF’s program administrator. 50 South Capital is tasked with doling out funds to various managers, who will then make the critical decision of which entities to invest in.
“[T]his is a $220 million mandate that’s coming from the state treasurer’s investment portfolio that we’re investing over three years in a diversified portfolio of about 25 to 30 different managers that are based here in Illinois,” said Chris McCrory, vice president of 50 South Capital. His remarks were made at the 2017 Incubate Illinois Conference. “And so our job is to select those managers, identify which ones are the best ones to ultimately create jobs and generate innovation and technology here in Illinois.”
McCrory added that, for private equity and venture capital companies, getting access to ILGIF funds is not an easy task. The investment company must be based in Illinois, meaning it must have an office as well as a senior investment professional based in the state. They also must have a track record of investing in Illinois-based companies.
In total, the ILGIF anticipate investing in 25 to 30 funds, with commitments ranging between $2.5 and $15 million per fund. The minimum fund size should be $10 million at the time of final closing. Investment managers must be committed to diversity among their own staff as well as their portfolio companies. No more than 15 percent of the ILGIF’s total investment capital will be given to a single fund. It will seek to invest in Small Business Investment Companies, which is defined as a privately owned investment company licensed by the Small Business Administration.
What Is the ILGIF’s Investment Strategy?
Not all money earmarked for the ILGIF will go to venture capital companies for investment. A significant portion has been allocated for other purposes.
“From a portfolio construction standpoint, about 50 percent of the capital, up to 60 percent, will be invested in true venture capital firms doing seeds, series A- and series B-type investments. The remainder will be…middle market buyout and credit firms,” McCrory said.
According to the ILGIF website, the fund’s investment diversification strategy includes 50 venture capital firms, 30 growth/buyout firms, 10 turnaround firms and 10 private credit firms.
“There’s a lot of growth going on in the middle market and by all; it’s not just venture capital. And actually, this is the second iteration of the ILGIF program; the first one was back in 2002…The number of jobs created through that, which was invested in both venture capital and buyout firms, was outstanding. And so, we’re not about just cutting costs and tracking value that way; this is about investing in companies, growing those companies, and making them more efficient,” McCrory said.
For more information about the ILGIF, visit www.ilgif.com.