Illinois leads in tech employment, while business development lags


The Illinois General Assembly’s passage of SB 107, which creates a Technology Development Account II  using money from the state Treasurer’s investment pool to support technology companies, might be a step in the right direction. But Illinois has a lot of catching up to do, experts said.

While Illinois is one of the nation’s 10 “leading technology states,” based on employment in technology sectors, the state lags in venture capital and seed-stage funding for technology firms. The funding is crucial to business development and job growth, experts said.

“If you look at the habits on the coasts, there is a very great degree of public segment investment and local venture investment partcularly through the pension funds,” said state Rep. Daniel Biss (D-Evanston).  “It creates a whole ecosystem that feeds on itself,” Biss said. Biss was a strong supporter of the Illinois legislation, which awaits Gov. Pat Quinn’s expected signature.

Among the leading technology states, Illinois was last in the amount of seed capital in 2009, with $1.6 million in seed-stage funds compared with $737 million in California, according to  a report from Biss’ office. Excluding seed funding, Illinois received $235.7 million in venture capital in 2009, compared with $8.5 billion in California, which led both lists.

Biss called the Illinois legislation “a piece of the puzzle” that will start the ball rolling for technology funding and hopefully reverse the trend of startups exiting the state. When the startups leave for greener pastures, they take with them talent often was educated at Illinois universities.

The tide might be starting to turn in Illinois,  said Ed Longanecker, executive director of Naperville-based TechAmerica. He cited the recent passage of an angel investment tax credit as well as development of the Illinois Innovation Council, the Illinois Innovation Network and the Illinois Technology Coalition.   “To me, this means we have a lot of momentum,” Longanecker said.

Biss said he didn’t have a particular answer in mind when  he examined the situation facing technology companies in Illinois. But he knew the potential of technology innovation from his previous experience at Massachusetts Institute of Technology, where he received a doctorate before teaching math.

Biss used the data to make a compelling case to fellow legislators on the importance of technology funding. Once the bill has been signed by Gov. Pat Quinn, which Biss expects to occur soon, the state Treasurer will initiate the new fund-of-funds. “It may well take several years before the dollars end up in the hands of entrepreneurs,” he said.

The legislation will add 2 percent of the Treasurer’s investment dollars to the existing 1 percent in the Technology Development Account 1 funding, for an expected total of more than $200 million earmarked for high-growth technology companies, Biss said. Currently, about $31 million of the state’s $75 million investment in the Technology Development Account I has been deployed, leaving more than $40 million that has been committed but not yet  invested in technology firms, Biss said.

In addition, the recent legislation stipulates that venture funds receiving investment dollars from the Treasurer’s portfolio need to invest twice the dollar amount in Illinois companies. “This two-to-one rule is as aggressive as any in the country,” Biss said. “No one goes beyond that.”

Because venture firms will add outside capital to the state funds, the multiplier effect will likely be $5 invested for every $1 of Treasurer funds, Biss said.

The fund-of-funds allows for investment outside the state because   investors want the freedom to select the most promising investments. “They would oppose legislation that mandated all the money end up in Illinois,” Biss said. “It gives them the flexibility to still do promising deals outside the state if they will bring a great return to the taxpayers,” he said.

The leading technology states are selected based on the Massachusetts Index of the Innovation Economy, which examines the concentration of employment in key clusters. In 2009, 29 percent of Illinois jobs fell in key clusters, according to data from Moody’s and the U.S. Bureau of Labor Statistics. Illinois had above average employment concentrations in financial services; scientific, technology and management services; advanced materials; and diversified industrial manufacturing, the data indicate.