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By DON DODSON Copyright 2004 The News-Gazette CHAMPAIGN – It wasn't enough to build a research park and incubator. Nor was it enough to invest public dollars as seed capital in start-up companies. Now the University of Illinois hopes to raise $20 million in venture capital for a newly established private equity fund, the Illinois Emerging Technologies Fund. Some of that money would be invested in start-up companies that use technology developed at the UI. The fund raised its first $12 million in January and hopes to attract another $8 million by midyear, said John Banta, chief executive officer of IllinoisVentures, the limited-liability company formed by the UI that acts as manager for the fund. Because the university is using a private offering to build the fund, Banta said he's limited in what he can say about the nature and structure of the fund, which is a limited partnership. If he says too much, federal regulators might consider the solicitation a public offering, at which point the university would have to disclose more – and comply with more requirements – than it would for a private offering. Banta is more free to talk about the public money IllinoisVentures invests. So far, IllinoisVentures has made investments in about 25 companies and has organized groups of investors for about 10 companies, many of which use technologies developed by UI faculty members. Under the rules for IllinoisVentures, staff can authorize investments of up to $25,000 in a company. Any amount exceeding that must get approval from the IllinoisVentures board of managers – and there is no limit on the investment, Banta said. The investments come in the form of debt that can be converted to equity – essentially loans that can be converted into ownership shares. So far, UI-affiliated companies have received about $8 million in seed and preseed funding, with between $2.5 million and $3 million of that from IllinoisVentures and the rest from co-investors. Plus, the companies have received between $6 million and $7 million in grants, many of them Small Business Innovation Research grants from federal agencies. That early-stage revenue helps companies reach major milestones, such as building management teams, providing patent protection for technology and getting products to market. Altogether, IllinoisVentures has evaluated about 180 projects at the Urbana-Champaign and Chicago campuses in either a consultative, advisory or funding role, Banta said. IllinoisVentures expects to receive about $4.5 million in public funds for the fiscal year that begins July 1, he said. The proposed state appropriation is about $3 million, up from $1 million this year. IllinoisVentures also receives a total of $700,000 from the UI President's office and from the offices of the vice chancellors of research on the Urbana-Champaign and Chicago campuses. Additionally, the program administers state money earmarked for the Illinois Technology Enterprise Centers in Chicago and Champaign. Even with all those sources, the private equity fund is needed, Banta said. "We knew it was an important funding mechanism, so we began the process of putting the fund together. We began marketing it late last year," he said. The fund is designed for investment in companies that have advanced beyond seed-stage, but have yet to get their first major injection of venture capital. The fund is not limited to investing in UI-related companies, "although the majority of our current development work involves such companies," Banta said. Banta said it's difficult for early-stage companies in the Midwest to get access to venture capital. "It's hard to come by," he said. "There's not as active an angel community in the Midwest for the early stage." Rob Schultz, senior director for IllinoisVentures in Champaign, said in some cases, IllinoisVentures has sought out West Coast investors. "We spend a lot of time interacting with co-investors, including leading West Coast venture firms," he said. Banta said he's pleased with how quickly IllinoisVentures has advanced in a short time. "Two years ago, it was theory, and now we're at the point where the tires are kind of hitting the road in terms of activity," he said. "We've been working with companies for a year, and many are making tremendous progress," Schultz said. Rapidly developing companies on the Chicago campus include ZelleRx, a cell therapy business, and Mobitrac, which is developing software to help improve fleet productivity for trucking companies. Among companies in Champaign-Urbana that are developing rapidly: – Renew Power, which is developing microelectronic fuel cells. – Moire, which helps companies and government agencies sift through information by using "data-mining" techniques and real-time analysis. Nanodisc, a biotechnology firm that has developed chemical structures useful to pharmaceutical researchers and developers. Moire, for example, is "currently working with Country Companies and enabling them to identify opportunities in customer service operations, using advanced analytical techniques," Schultz said. Kirk Dauksavage, the new chief executive officer of Moire, said his company is in the process of completing seed funding from IllinoisVentures – and choosing a new name to replace Moire (MWAH-ray). "Too hard to pronounce," he said. Meanwhile, the company is launching test projects with British Petroleum and Country Companies. Moire's data-mining technology should help British Petroleum monitor well-sensor data, he said. Dauksavage said the technology, developed by Michael Welge and Tom Prudhomme of the UI, also has "huge potential" for applications in homeland security, financial services and wireless communications. "There's a trend toward analyzing data that's streamed instead of static," he said. Dauksavage said one thing that really impressed him about IllinoisVentures is its "great board." "They have a number of top people on that board, which is great for any start-up," he said. The board has five private-sector members: James L. Foght, Warren Holtsberg, Peter Solvik, Michael Tokarz and David Wilhelm. Other voting members are: UI Board of Trustees Chairman Lawrence Eppley, Trustee Jeffrey Gindorf, and Charles Zukoski and Eric Gislason, the vice chancellors of research on the Urbana-Champaign and Chicago campuses, respectively. The board also has three nonvoting members: David Chicoine, the UI's vice president for technology and economic development; Steve Rugg, the UI's vice president for administration; and Tom Bearrows, the UI's counsel. The five private-sector members constitute a separate board that oversees the Illinois Emerging Technologies Fund. You can reach Don Dodson at (217) 351-5227 or via e-mail at dodson@news-gazette.com. |
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