CHAMPAIGN — Four startup companies with ties to the Champaign-Urbana area have been approved to receive equity investments from the state's new Invest Illinois Venture Fund.
The fund was set up last year as the venture capital arm of the state's Advantage Illinois program.
It's designed to make equity investments that match up to 25 percent of a company's lead investment — to a maximum of $1 million, said Chirag Shah, who is encouraging local firms to consider the program.
So if the lead investment in a company is $400,000, the state could invest up to $100,000, said Shah, the technology, innovation and entrepreneurship specialist for the Small Business Development Center in Champaign.
So far, four companies with local ties — Caterva, ANDalyze, Diagnostic Photonics and Nuvixa — have been approved for investment. But they have not yet been awarded any money.
The fund is intended to replenish itself. Once a company is seen as self-sustaining, the state will consider exiting as an investor, and the proceeds from its investment will go back into the fund to help other early-stage companies.
The targeted exit time is five years after the initial investment, according to the state Department of Commerce and Economic Opportunity, which administers the program.
In considering applications for venture capital, the state looks for companies in rapidly expanding markets that show the potential for snagging large market share.
The state also looks for companies that use new ideas or technologies and have "a clear path to commercialization and monetization," according to the department.
Participating companies need to have a commitment from a third-party lead investor, and they need to be based in Illinois — unless they're out-of-state firms planning to relocate their headquarters or principal operations to Illinois.
Tim Hoerr of Champaign-based Serra Ventures, which has invested in each of the four companies approved for state investment, said two other local companies — Oso Simple Technologies and The Product Manufactory — have applied to Invest Illinois and are awaiting word from the state.
Hoerr called the venture fund "a tremendous boost to early-stage and emerging enterprises seeking capital." He said the state "essentially provides matching funding to terms that are already defined" by previous private investors.
Hoerr said he thinks it makes sense for the state to have such a fund.
"It's an extension of our investment and that of other investors," he said. "It's a wonderful way to leverage committed investor dollars without a significant amount of effort."
The application is straightforward, Hoerr said. Businesses can download the form from a state website, provide basic information from their business plans and attach a term sheet from the lead investor showing how much money is coming from investors.
There's not a long wait for a decision, he said.
"The goal is to get a 30-day turnaround — thumbs-up or thumbs-down — on the formal closure process," he said.
That doesn't mean that deals are closed within 30 days, but companies generally get feedback from the state within that time, he said.
Invest Illinois doesn't put arduous terms on its investment, Hoerr said.
"The state looks and acts similarly to other investors. They're not asking for special provisions or asking for board seats," he said.
Plus, there are no requirements to buy so much equipment or hire so many people, he said.
The first two companies to receive investments from Invest Illinois were announced in late January. At that time, Chicago-based Buzz Referrals and Evanston-based Aura Sense Therapeutics received $575,000 from the state.
Buzz Referrals developed an online platform that creates custom referral programs based on social media. The company expects to grow to 20 employees over the next two years, according to the commerce department.
AuraSense Therapeutics is a biopharmaceutical company developing spherical nucleic acid constructs that can help fight heart disease, cancer, skin conditions and bacterial infection.
Advantage Illinois was launched in October 2011. In addition to the venture fund, the initiative has several programs aimed at spurring institutional lending. Money for Advantage Illinois comes from the U.S. Treasury through the State Small Business Credit Initiative.