Following a spate of initiatives in many US states to spur high-tech investing within their borders, Illinois last month launched its own programme aimed at investing $50 million of state money in venture capital funds. The Technology Development Fund, as the programme is dubbed, was spearheaded by former governor George Ryan more than four years ago and is part of an effort to make Illinois more attractive to both entrepreneurs and venture capitalists.

Indeed, the state needs all the help it can get. A study released late last year by consulting firm AT Kearney concluded that despite top-notch universities, federal research centres and well-known large companies such as United Airlines, Boeing and Motorola, Chicago, Illinois's largest city and business hub, is failing in the venture capital realm. Not only is there a low number of early-stage and start-up companies, but there is a general dearth of VC firms providing early-stage and seed capital. In the report, Chicago, the third largest city in the US, ranked 49th on a list of attractive places for entrepreneurs, lagging behind such cities as Kansas City, Missouri; Grand Rapids, Michigan; and Oklahoma City. The $50 million investment is small compared to similar programmes in surrounding states. In January 2003, Michigan created a $150 million fund to back firms investing in local start-ups. In October, a coalition of institutional investors in Indiana announced the formation of Indiana Future Fund I, a $72 million capital pool that will invest in regional and national VC funds and encourage direct investment in Indiana's life sciences. And in September, Wisconsin governor Jim Doyle was busy pushing his “Grow Wisconsin” initiative that would deploy $300 million in venture capital over 10 years. However, the Illinois fund is not required to invest solely in companies based in the state, as many industry participants observe that funds limited geographically perform poorly compared with those that can invest more freely. The Illinois treasurer's office is “trying hard to balance the economic development interests and the rate of return”, according to one recent Chicago newspaper report.