State’s Goal Is Bigger Than Tooth-Fairy Money’ –

Despite ridicule from critics, Illinois Gov. Rod Blagojevich has decided to move forward with his plans to develop a statewide economic growth plan that relies heavily on venture capital. The plan calls for a $200 million fund-of-funds-named the Illinois Greater Opportunity Fund-to be raised by the end of 2003.

The fund’s objective is to create opportunities for entrepreneurs and workers across Illinois-especially in rural areas that haven’t traditionally had access to venture capital. The fund will mostly seek out startups.

While the idea is still in its developmental stage, Jack Lavin, the head of the Department of Commerce and Economic Opportunity, who was appointed by the governor in early February, expects to bring the proposal to the legislature in early March and have it approved by the legislature and signed by the governor by June.

Talking Stage

“We are really just talking to people about the idea right now,” Lavin says. “It is still very early, but it is a top priority of the governor’s. He talked about it a lot in the campaign.”

Lavin does not expect the project to have any difficulty getting through the legislature, mainly because the fund is not expected to burden taxpayers. It will get its capital from limited partners within and outside of Illinois. The fund would be managed by an independent entity.

The state will most likely hire a consulting firm decide which venture firms it should invest in. Lavin was mum about the names of investors that the state hopes to tap, but he says he expects help lining up investors from the Illinois Venture Capital Association. “In a month or so we will know who we are targeting and we will be looking for suggestions from the Illinois Venture Capital Association,” he says. “We will also be looking for input from high-quality venture firms in the area.”

Rural companies haven’t received much attention from the state in the past, because it spent a great deal of time chasing “big deals” that come out of the city. “We want to help entrepreneurs in our state and get them access to capital,” Lavin says. “There are plenty of good companies that just need to get funded to get the next level. We’re hoping small businesses will mean big business for us.”

Control Issue

While the fund’s main objective is to help Illinois spur economic growth by investing in areas that have lacked access to capital in the past, Gov. Blagojevich wants to ensure that the fund has good returns. It will not completely limit itself geographically. “If you restrict your investing you increase your risk,” Lavin says. “We will have to balance our investments between rural areas and other places. There are lots of good, profitable deals out there and we want to be involved in them. At the same time, we don’t want to just put money out there and let the VCs do what they want. We want some control.”

Critics have dismissed the state’s venture capital plan, arguing that institutional investors are unlikely to buy into a geographically limited fund. The State Journal-Register newspaper blasted the idea before the election: “Blagojevich’s plan for reviving the economy, based largely on an unproven venture capital scheme, is only slightly more realistic than asking the state’s children to send in their tooth-fairy money.”

Voters disagreed and so does Lavin. “This has worked in other states like Oklahoma and we don’t see any reason that it wouldn’t work here,” he says.

New to the job, Lavin brings with him experience in both the public and private sector. As deputy state treasurer in the early 1990s, he helped triple the amount of money the state invested in economic development. The programs he oversaw helped more than 25,000 families and businesses gain access to credit, he says. He also worked as chief financial officer of Rezko Enterprises, helping the company grow from eight restaurants when he joined in 1995 and to more than 120 five years later. At the same time, annual sales increased from $4.3 million to $60 million, and the company create more than 1,800 jobs, Lavin says.