Illinois funding gap sends startups out of state for capital

Filed under Financial, News, Special Reports

By Ann Meyer

Jabber Jury founders take a time out along the Chicago River

Jabber Jury founders Kevin Wielgus and Angelo Rago received $1.2 million from a Florida venture capital firm, but plan to stay in Chicago. Photo by Terry Couvillion courtesy of Jabber Jury

Story updated at 10 a.m. Tuesday.

When Jabber Jury officially goes live with its online programming, it will be largely due to out-of-state venture capital that funded the Chicago startup.

The company had little more than a concept to show investors last November when it attracted $1.2 million from Everett Palmer, a venture capitalist at Lightwater LLC in Palm Beach Gardens, Fla. Palmer knew president and chief executive Kevin Wielgus and liked Jabber Jury’s concept, which invites users to view videos depicting two sides of a dispute and vote on who’s right. “This will be the Facebook of conflictainment,” Palmer said.

Illinois funding gap

Many entrepreneurs have grand plans of Internet businesses that will take the market by storm, but often they fail due to lack of capital. Obtaining seed funding has been especially difficult in Illinois, which lags the coasts in early-stage capital, experts said.

While current funding data is not available, in 2007 when a strong economy supported more deal-making, Illinois venture capital investments totaled $150 million in 23 deals, compared to $5 billion in 995 deals nationwide, the Illinois Venture Capital Association reported. What’s more, a large gap existed between early stage and later stage investments.

 That gap contributes to business failures or relocations out of state. “Companies that cannot attract early-stage capital either fail, seek capital elsewhere (e.g. on the coasts) or grow more slowly until expansion stage capital is available,” the Illinois Venture Capital Association stated in a report, “Illinois Venture Capital: How it stacks up.”  

While Jabber Jury is committed to staying in Chicago, Wielgus said the company would have preferred to find capital locally.  “We certainly did look here. We certainly did talk to a few firms,” Wielgus said, noting that Jabber Jury initially raised $120,000 from friends and family before looking for venture capital.   

Nine jobs created

So far, Jabber Jury has hired nine employees at its River North location and will continue to add staff as it develops, Wielgus said. “We anticipate being cash-flow positive in six months,” Wielgus said.

Aware of the funding challenges Illinois startups face as well their potential for creating jobs, the newly formed Illinois Technology Alliance plans to lobby legislators in Springfield to push for more early-stage funding for Illinois technology startups.

“We have great research here in Illinois. Let’s keep it here,” said David Miller, president and chief executive of the Illinois Biotechnology Industry Organization, or iBio. The group and three others  — the Illinois Venture Capital Association, the Illinois Science & Technology Coalition and TechAmerica — formed the Alliance this month to lobby for public policy initiatives that will support innovation and drive growth among Illinois’ tech sector.  

Betting on Illinois entrepreneurs

In the past, Miller said, the state invested capital with intermediaries on the coasts, which did not necessarily provide capital to Illinois companies. But the Technology Development Account, launched by the state in 2003, is dedicated to deploying money to venture capital firms that will invest in Illinois technology businesses. “It’s a matter of deploying and making a bet on our own people,” Miller said.

The Technology Development Account’s $75 million currently is fully committed, but the Alliance will push for a replenishment of $150 million, Miller said. The original tech account was “unbelievably successful” at attracting additional capital. “For every dollar the state invested, the private sector added twenty-two dollars,” Miller said.

As an investment vehicle for the state, adding capital to the account “doesn’t require new monies, no new tax dollars,” Miller said. The legislation creating the Technology Development Account authorized up to 1 percent of the state Treasurer’s investment portfolio go to Illinois-based venture funds focused on technology development, according to the Illinois Venture Capital Association.

Lobbying for more

But it’s not the first time proponents of more early-stage support for technology have lobbied Springfield. The Illinois Venture Capital Association and others urged state legislators to authorize up to 2 percent of the state Treasurer’s investment portfolio to be used for early-stage funding for Illinois companies by establishing a second technology development fund of funds for Illinois startups called Technology Development Account II.  

Efforts to expand state investment failed in 2008, 2009 and 2010.  “It’s going to take educating the legislators that this is the need. This is the way we need to go,” Miller said.

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