More venture capital in state
Investments in Illinois companies increased 25% in 2006, report finds
By Mike Hughlett
Tribune staff reporter
Published January 23, 2007
Venture capital investments in fledgling Illinois companies topped $300 million last year for the first time since the tech bubble burst, according to an annual study released Monday.
Anchored by a few particularly big deals, venture investments in Illinois totaled $344 million in 2006, up 25 percent from the previous year, according to the Quarterly Venture Capital Report by Ernst & Young and Dow Jones VentureOne.
Nationally, venture capital investments hit a five-year high of $25.7 billion, up 8 percent over the previous year, the report found.
Venture capital is a form of investment that's critical for small, fast-growing firms--particularly technology companies. Typically, it is the money used to get a company off the ground. While the payoffs can be huge if the company succeeds, the risk of failure is high.
Illinois isn't a hot spot for venture capital. The state received 1.3 percent of all venture capital funding nationally last year, according to a Tribune analysis of a Dow Jones/Ernst & Young report.
Still, that was Illinois's biggest slice of the pie since 2001, when the state pulled in $563 million, or 1.5 percent, of all venture funding.
"Things are definitely improving," said Keith Bank, managing director of KB Partners, a venture firm in Northbrook. "The amount of capital in the market has certainly increased."
Maura O'Hara, executive director of the Illinois Venture Capital Association, said Illinois has been looking more attractive to venture funds on the East and West Coasts.
That's because higher valuations are often placed on promising, young firms on the coasts when compared to the Midwest, she said. "A lot of outside money has come into Illinois. People are searching for value deals."
While the number of venture deals was down a bit in Illinois last year, the dollar volume was way up, buoyed by several big-buck financings, including three over $50 million, according to the Ernst & Young/Dow Jones report. The median deal nationally was $7 million.
One of those big deals was $57 million of later-stage funding for Northbrook-based Nanosphere, a pharmaceutical company that utilizes nanotechnology.
The deal's lead investor was Boston-based Bain Capital. It also included New York-based Allen & Co. and Chicago's Lurie Investments, Nanosphere's founding investor.
The first half of 2006 marked the busiest time for venture funding in Illinois, though two significant deals capped the fourth quarter.
BridgePort Networks, a Chicago-based telecom software firm, got $13 million, bringing its total venture funding to $51 million over three years.
Also, Peoria-based Firefly Energy, which is seeking to reinvent the lead-acid battery, won $10 million in financing, in addition to the $7 million it had already raised.
Venture funding in Illinois and nationally fell off in 2002, as the excesses of the tech boom came home to roost. Too much money ended up in too many low-quality deals.
But as more money has flowed back into the market, venture investors appear to have learned their lesson. "The quality [of deals] is as good as it has been in some time," said KB's Bank.
In Illinois, the relative lack of seed capital remains a problem, Bank said. Seed capital is early-stage venture funding needed by companies just launching their work.
"My view is that there is still way too little seed capital available here," Bank said.
----------
IS PPMD IN THE RIGHT PLACE AT THE RIGHT TIME?
Lazarus - wondering out loud.
News 
Market Data 
Discover 
