2011 ivca - private equity, private good

The Case for an Essential Industry

Private Equity | Public Good

Giordano’s

PeaPod

Ulta saPPhire enerGy

deVry UniVersity

Bioniche PharmaorBitzschool of rock

ati Physical theraPy

2011 annUal rePort

these nine companies, the majority in illinois, reflect the breadth of american industries. they are or have been backed by private equity firms; the majority by illinois firms. they represent the significant contribution that private equity makes to the american economy.

more than 14,200 U.s. companies, employing 8.1 million people, are owned by 2,300 private equity firms.

ATI PHYSICAL THERAPY

PEAPOD

SAPPHIRE EnERgY

ORbITz WORLDWIDE

gIORDAnO’S

bIOnICHE PHARMA

DEVRY UnIVERSITY

SCHOOL OF ROCK

ULTA

sponsoring members

Adams Street Partners

Blackman Kallick LLP

CHS Capital

Duchossois Technology Partners

GTCR LLC

IllinoisVENTURES

KPMG

Madison Dearborn Partners

Mayer Brown LLP

McDermott, Will & Emery

Mesirow Financial Private Equity

Neal, Gerber & Eisenberg LLP

New World Ventures

Reed Smith

Ropes & Gray

Sidley Austin

SNR Denton

Spencer Stuart

Square 1 Bank

Sterling Partners

The Pritzker Group

Thoma Bravo LLC

Willis Stein & Partners

Wind Point Partners

Adams Street Partners LLC

Apex Venture Partners

ARCH Venture Partners

Baird Venture Partners

Beecken Petty O’Keefe & Company

Duchossois Technology Partners LLC

Dunrath Capital

Ernst & Young LLP

First Analysis

Frontenac Company

KB Partners


Mid Oaks Investments LLC

MK Capital

Motorola Solutions Venture Capital

New World Ventures

Northern Trust Global Advisors

OCA Venture Partners

Paradigm Capital, Ltd.

Prairie Capital

Prism Capital

Silicon Valley Bank

Sterling Partners

Svoboda Capital Partners

The Edgewater Funds

Thoma Bravo, LLC


Wind Point Partners

IVCA FOUNDING MEMBERS

Provide outstanding support for IVCA in the form of services and/or the highest levels of event sponsorship

Baker Tilly Virchow Krause, LLP

Edelman

Edwards Wildman

Kirkland & Ellis LLP

Kutchins, Robbins & Diamond, Ltd.

McGladrey

Silicon Valley Bank

SPONSORING MEMBERS

Have sponsored at least one event during the year

SUPPORTING MEMBERS

Design: Avila Creative, Inc. Editorial: Edelman Primary Photography: Steve Ewert PhotographyInfographic Illustration: Dale Glasgow & AssociatesPrinting: The Fox Company

How a Private Equity or Venture Capital Fund Works

The fi rm creates an investment “fund” to invest in private companies from “Limited Partners,” typically:

– Pension funds – Endowments– Foundations

The fund considers thousands of companies.

The fund typically acquires a companythat can grow significantly with skills and investment:

– Updated business strategy – Additional talent– New equipment & facilities– R&D

The company’s value grows signifi cantly. After 3-5 years of focused effort, the company is worth significantly more than at time of investment.

The fund invests in 7-10 portfolio companies over the fund’s life.

The fund closes. Each portfolio company is sold when a good price is offered. When all of its companies are sold, the fund closes. The initial investment plus profits are distributed:

– 80% of profits go to Limited Partners

– 20% of profits stay with the fund as “carried interest”

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When individual investors buy stock or

shares in a mutual fund, they invest

their own money in a company or many

companies. Private equity investors do,

too, with some important exceptions.

They buy a signifi cant share of the stock

in a company, they take a meaningful

strategic role at it and the money they

invest primarily is capital raised from

sophisticated institutional investors.

They invest their own dollars as well, but

it’s often a small portion of the fund

that they manage.

Private equity fi rms invest and add

their expertise to promising private com-

panies poised for growth and mature

companies in need of assistance. The

capital they raise and invest helps them

make operational improvements and

execute growth strategies that build

stronger companies for the long-term.

Venture capital – equity investments

for the launch, early development or

expansion of a business – also is an

important part of the private equity

industry. Both private equity and venture

capital furnish the funds to develop a

company and the business acumen to help

management drive growth.

Private equity serves as a vital engine

that helps power the American economy.

In 2011, private equity fi rms invested

nearly $144 billion in 1,702 U.S. compa-

nies. That funding creates an economic

ripple that fl ows through the economy,

preserving and creating jobs and

forging growth.

Who gains from the investment returns

that private equity generates? Millions

of Americans who benefi t from charitable

foundations, university endowments

and pension funds. Workers gain from an

employer that is put on a successful path.

Companies profi t from the improvements

that private equity owners deliver to

make them bigger and stronger. And

America gains from an expanding and

dynamic economy.

While private equity isn’t usually in

plain sight, its benefi ts are felt across the

country. More than 14,200 U.S. companies

that employ 8.1 million people are backed

by about 2,300 private equity fi rms.

One-third of the 212 top privately held

companies on Forbes’ 2011 list were

backed by private equity. Familiar names

include Biomet, Burger King, Dollar

General, Harrah’s Entertainment, Hyatt

Hotels, Michaels Stores, Petco, Service-

Master, Sports Authority and Toys“R”Us.

Chicago’s private equity community

encompasses 80-plus fi rms that represent

1,400-plus portfolio companies. Their

holdings range from A to Z, including

ATI Physical Therapy, Boise Cascade,

Cole Taylor Bank, Giordano’s, GrubHub,

Red Foundry, Sapphire Energy, School of

Rock, Sittercity, U.S. Renal Care and

Zorch International.

Increasingly, private equity is Chicago.

Simply listen to Mayor Rahm Emanuel,

who told IVCA members in 2011: “When

you look at what makes up the basic

building components of a very successful

economic culture in a startup community,

it is the entrepreneur, the research

institutions, the fi nancial backing, as

well as the coaching that comes from

successful entrepreneurs to help young

entrepreneurs who have new ideas

to nurture them, sponsor them and

encourage them to succeed….I am very

confi dent about Chicago’s future.”

The Impact of Private Equity

PRIVATE EQUITY SERVES AS A VITAL ENGINE THAT HELPS POWER THE AMERICAN ECONOMY. IN 2011, PRIVATE EQUITY FIRMS INVESTED NEARLY $144 BILLION IN 1,702 U.S. COMPANIES. That funding creates an economic ripple that fl ows through the economy, preserving and creating jobs and forging growth.

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As for Illinois, the state ranked eighth in 2011 by investment value, with $5.2 billion invested in 87 transactions. Illinois represented 3.6 percent ofall U.S. private equity investments in 2011, and its number of transactions ranked fifth among the states.

$5.2 BILLION

I V C A 2 0 1 1 A N N U A L R E P O R T 3

Unfortunately, many Americans don’t

understand what private equity is or its

importance to the economy. That’s been

vividly apparent as our industry has

gotten caught up in the frenzy of

presidential election politics this year.

“In short, that’s been a real wake-up call

for us,” says Jim TenBroek, 2011-2012

IVCA Chairman.

By nature, private equity fi rms are

wary of explaining what they do or the

difference they make. TenBroek relates

that he used to simply reply, when asked

what he did, that he was “an investor.”

More recently, he adds, he came to “the

realization that many people outside our

world don’t really understand capitalism

all that well; they certainly don’t under-

stand how the fi nancial world works.”

And the failure to communicate the

arguments that support private equity’s

role in the economy has hurt our industry.

“The private equity industry has done a

terrible job of explaining what it does,”

asserts Colin C. Blaydon, Director of

Dartmouth’s Center for Private Equity and

Entrepreneurship.

But that reticence to explain private

equity’s worth is evaporating. The

industry is striking back with strong

messages about its contributions

delivered by the Small Business Invest-

ment Alliance (SBIA), National Venture

Capital Association (NVCA) and the

Private Equity Growth Capital Council

(PEGCC), and other related associations,

such as IVCA.

Still, many Americans consider private

equity to be that business where indi-

viduals and investment firms buy

companies and then reap rich returns

when they sell them. They’re not com-

pletely wrong, but they don’t recognize

the value added to private companies

from experienced investors – they don’t

understand all of the hard work that

occurs between buying the company and

selling it that creates the value.

CONSIDER THE FOLLOWING CASE FOR PRIVATE EQUITY.

What Private Equity, or PE, fi rms do:

They buy companies. Often, they’re

underperforming for some reason or other

– some times the owner is not even aware

of the underperformance. An investor

can imagine a better future for them.

The PE fi rm and its professionals can

use their expertise and resources to

strengthen the company and then, after

a few years, they can sell the company

again for a profi t. If it all works, the

company grows, creates new jobs and

helps the economy. If it doesn’t work, the

investor does not earn a big return on

investment, or ROI. And if there is no

return on investment, the PE investor

is out of business because Limited

Partners will not reinvest unless the

returns are great.

PE fi rms want to earn an ROI. It’s no

different than any American investor who

buys public stocks and bonds, expecting

that those investments will grow in value

over time and they will make money from

dividends or when they sell it. Private

equity investors, who use their skills and

experience to grow the companies in

which they invest, must hold their fund

holdings for at least 10 years.

They don’t always make money on every

company because, as individual investors

in stocks and bonds know, it’s a risky

business. Occasionally, losses are in-

evitable, especially in a rotten economy.

Across the portfolio of companies,

however, a VC/PE fi rm must show a

good return.

Millions of Americans owe their

continued employment to the abilities

of these fi rms. Consider that of the 212

companies on Forbes’ 2011 roster of

top private companies, 30 percent were

funded by private equity. And in 2010,

11 percent of the private sector repre-

sented companies once venture backed.

The Case for Private Equity

PRIVATE EQUITY FIRMS RAISE FUNDS FROM LIMITED PARTNERS AND COUPLE THEM WITH DEBT TO BUY COMPANIES AND SELL THEM — EITHER TO OTHER COMPANIES OR TO PUBLIC INVESTORS. They and venture capital firms, part of the larger private equity universe, strive to make a company excel or to reinvigorate it. Every day, that process plays out across America in more than 14,200 private equity-backed companies, helping employ millions of people and improve our economy.

About 690 private equity-backed companies call Illinois home and, collectively, they employ more than 308,300 workers. From 2002 to 2011, private equity firms invested an estimated $114 billion in Illinois-based companies.

$114 BILLION

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That defi nes the broad swath of private

equity on our economic landscape.

In Chicago, 80-plus private equity fi rms

represent 1,400-plus portfolio companies,

many of which are headquartered in

Illinois but most are elsewhere. That’s

important, too, as the prowess of the

state’s private equity industry spreads

far beyond Illinois’ borders.

Familiar Chicago-based companies

backed by private equity include CDW,

Giordano’s, Nuveen Investments, Levy

Restaurants, Private BanCorp, SAVO Group

and ServiceMaster, among others.

What Illinois PE Firms Do:

Talk to PE investors and academics who

know the industry in Illinois and they’ll

say private equity is heavily weighted

to the middle market and to focusing on

operational improvements, and not just

fi nancial engineering. Chicago, they say,

is considered a middle market-savvy city.

Increasingly, PE fi rms here also

prefer to concentrate on sector-specifi c

expertise. Linden LLC, for instance,

specifi cally focuses on health care.

Brian Miller, a managing partner there,

recalls that in 2002, when he helped

found Linden, specialists using “a focused

team working with operating knowledge,

this was the new model.” So does

Beecken Petty O’Keefe & Company and

Water Street Healthcare Partners, among

others. Anderson Pacifi c Corporation

invests in the media and telecommunica-

tions industry, and ARCH Venture Partners

concentrates on converting technologies

from universities into companies.

Other fi rms that invest in various

industries also use focused teams that

specialize in one particular area.

Sterling Partners, for instance, engages

professionals who concentrate on

fi nding promising business services,

education and health-care sector

candidates for the PE fi rm’s portfolio.

Wind Point Partners, with a focus on

top grading management and driving

change through a clear value-creation

plan, leverages the industry expertise

of its CEO partners for the particular

target investment.

PE Firms’ Investments in Illinois and the U.S:

In 2011, U.S. private equity fi rms invested

$144 billion – representing 55 percent

of $274 billion in global investments –

in 1,702 transactions.1 American fi rms’

investments dwarfed those of any

other country.

As for Illinois, the state ranked eighth

in 2011 by investment value, with $5.2

billion invested in 87 transactions.

Illinois represented 3.6 percent of all

U.S. private equity investments in 2011,

and its number of transactions ranked

fi fth among the states.2

About 690 private equity-backed

companies call Illinois home and, collec-

tively, they employ more than 308,300

workers. From 2002 to 2011, private

equity fi rms invested an estimated $114

billion in Illinois-based companies.3

In 2011, venture capital activity in

Illinois increased 30 percent over 2010,

with both the number of companies

receiving an investment and the dollars

invested climbing. Last year, 93 com-

panies in the state received venture

capital funding compared to 74 the year

earlier. The investments totaled $1 billion,

exceeding the $930 million invested

in 2010.4

The top four companies for venture

dollars invested in 2011 were Groupon,

Inc., with $136.2 million; Mu Sigma, Inc.,

1 Sources: PitchBook, Thomson Reuters, Private Equity Growth Capital Council analysis 2, 3 Sources: PitchBook, PEGCC analysis4 Sources: PitchBook, Thomson Venture One and IVCA research.

I V C A 2 0 1 1 A N N U A L R E P O R T

Last year, 93 companies in the state received venture capital funding compared to 74 the year earlier. The investments totaled $1 billion, exceeding the $930 million invested in 2010.

$1B

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$133 million; GrubHub, Inc., $70 million;

and Braintree, Inc., $69 million.

The State of Illinois recognized the

potential returns from private equity

funding as well. Since 2003, investments

by the Illinois Treasurer’s offi ce in

venture capital and private equity funds

– through its Technology Development

Account – has led to 3,500 jobs in 60 pri-

vate Illinois companies. This represents

a 117 percent jump in jobs since the

time of investment in these companies,

refl ecting a 90 percent growth in revenues

since funds were invested in them.

How did this happen? In 2003, the

state treasurer was authorized to com-

mit 1 percent of the state’s investment

portfolio into Illinois venture capital

and private equity fi rms with a goal of

investing in growth companies in the

state. Managed by Northern Trust Global

Advisors, the state’s investment in 14

venture capital and private equity fi rms

triggered tremendous job creation for

the state, thanks to a 17.5 times match

of private investor dollars.

The state treasury’s investment totaled

$44.8 million since 2003 and private

partnerships added another $742 million

– making total investments in these 60

companies of $787 million through 2011.

And $11.3 million has been returned to

the State Treasury from the sale of

portfolio companies.

In 2011, the state treasurer was autho-

rized to commit 2 percent of the state’s

investment portfolio into venture capital

and private equity funds dedicated to

investing at least two times the state’s

money into private Illinois companies.

This fund, Technology Development

Account II, also authorizes the treasurer

to seek additional investors for a “side-

car fund” that will allow corporations,

endowments, foundations and pension

funds to invest cost-effectively in

Illinois companies.

PE Firms as Employers:

Contrary to conventional wisdom by

many, private equity fi rms don’t suddenly

jettison their employees during fi nan-

cially diffi cult times. A recent report

by Moody’s Investors Service shows that

such companies are less likely to be

liquidated in tough times. It suggests

that private equity does more to save the

jobs of workers at struggling companies

than do other types of owners.

The Moody’s study reviewed more

than 1,000 situations where companies

defaulted on their debt. Two hundred

involved companies had undergone

leveraged buyouts backed by private

equity; the others had not. The data indi-

cates default rates among companies

with similar credit ratings were virtually

the same for all companies, whether

or not they were owned by private equity.

Why may PE fi rms stick with troubled

companies longer than other types of

owners? It might refl ect their experience

in repairing troubled companies, the

strong negotiating position they usually

have with their lenders and their capa-

city to invest swiftly in fi rms needing

repair. Importantly, they have fi duciary

responsibility for their investors’ dollars

as well as their own, and typically will

pursue all courses to save an investment.

Who the PE Leaders are:

They are specialists at what they do,

and many are former executives or pro-

fessionals at companies in the fi elds

they specialize in. Many professionals

in the healthcare or energy areas, for

instance, worked in the medical and

energy fi elds before joining a PE fi rm.

Other PE leaders are entrepreneurs,

investment bankers, lawyers or

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accountants who gained experience in

turnarounds, debt transactions or

venture capital.

Many of Chicago’s initial PE leaders

worked at the city’s largest banks and

gained investing expertise over many

years. Stanley Golder, considered

Chicago’s PE patriarch, built the private

equity program at First Chicago Corp.,

where he backed Federal Express, before

founding Golder Thoma & Co. Carl D.

Thoma, also at First Chicago and cofoun-

der of Golder Thoma & Co., co-founded

and served as managing partner at

Thoma Cressey Equity Partners. John A.

Canning, Jr. replaced Golder at First

Chicago and he later founded Madison

Dearborn Partners.

Mark Glennon, Managing Director at

Ninth Street Advisors, learned much

about PE as law partner at Holleb & Coff.

Laura Pearl, Managing Director of Ceres

Venture Fund, is a certifi ed public accoun-

tant who served four years at Ernst &

Young before joining Frontenac Company

in early 1985 and became partner in

1987. And Bryan Daniels, Christopher

Killackey, Stephen King and Darren Snyder

at Prairie Capital are alums of American

National Bank and Trust Co. of Chicago.

Chicago PE Partners Give Back:

Peruse cultural, philanthropic, commu-

nity and other nonprofi t organizations’

boards in the Chicago area and you likely

will fi nd PE fi rm partners and other

PE professionals well represented among

their directors. But, like their fi rms, they

rarely seek public notice. Many favor

lesser-known nonprofi ts, viewing them as

“entrepreneurial undertakings,” says

Carl Thoma, Co-Founder and Managing

Partner at Thoma Bravo LLC. (He is a long-

time supporter of Chicago Shakespeare

Rep and Writer’s Theatre in Glencoe.)

At the Old Town School of Music, it’s

guitar-playing Rob Ospalik, a partner in

Baird Private Equity. At Misericordia,

it’s Paul Carbone of The Pritzker Group.

John A. Canning, Jr., Chairman of Madison

Dearborn Partners, is a director of

Children’s Inner City Educational Fund

and a trustee of the Big Shoulders Fund

and the Field Museum, among others.

Ellen Carnahan of Machrie Enter-

prises is active in Communities in Schools

Chicago and the Chicago Network, and

Alex Washington of Wind Point Partners

and Mark Anderson of GTCR are directors

of Chicago Foundation for Education.

Darren Snyder, a partner in Prairie Capi-

tal, also is active in education, serving

as a founding board member of Polaris

Charter Academy in Chicago’s West

Humboldt Park neighborhood.

Bret Maxwell, Managing General Part-

ner at MK Capital, serves on the board of

Mt. Sinai Hospital and Stephen Beitler,

Founder and Managing Director of

Dunrath Capital and a former Green

Beret, is a board member of the Special

Operations Warrior Foundation that pro-

vides college scholarships and counseling

to children of Special Operations

personnel killed in action or training.

And the list goes on….

Summing Up Private Equity:

It’s clear, despite a fog of recent criticism,

that private equity plays a central role

in the nation’s economy. Please recognize

that when you order takeout food from

GrubHub, stay at a Hyatt Hotel, gamble

at a Harrah’s casino, exercise at an

LA Fitness Club or buy a child a gift at

Toys “R” Us…they’ve all been backed by

private equity.

A recent report by Moody’s Investors Service shows that such companies are less likely to be liquidated in tough times. It suggests that private equity does more to save the jobs of workers at struggling companies than do other types of owners.

Please recognize that when you order takeout food from GrubHub, stay at a Hyatt Hotel, gamble at a Harrah’s casino, exercise at an LA Fitness Club or buy a child a gift at Toys“R”Us…they’ve all been backed by private equity.

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This GPA won’t qualify you for Phil Beta Kappa or even determine if you graduate.

This GPA – GPA Holding Company, Inc. – is recognized as an industry leader in

substrates and expertise for the graphic arts industry. With its headquarters located just

west of Chicago in McCook, GPA is the leading provider of pressure sensitive papers,

specialty papers and printable fi lms for offset, digital, and other printing processes.

Founded in 1940 as a small printing paper business, the company over the years

became more of a niche business known as Gummed Papers of America with a focus

on adhesive-backed papers. As industry technology advanced, it focused exclusively

on selling label papers, and changed its name to GPA, America’s Label Experts.

Throughout the years, it saw a need for value-added products that would help print-

ers grow their business and expanded its offering to what it has become today.

Much of GPA’s growth is a result of a commitment to innovation, as well as a broad

product line and consultative approach to selling. The company also stays true to

the ideals it was founded on; its mission is “to offer a service as dependable as the

product we deliver.”

The company has grown rapidly. In the past eight years, it has recorded double-digit

revenue growth in six of them. Only in the recession did its revenue growth slow and,

in 2009, it did decline. But in 2010, that trend was reversed as revenues climbed 15.5

percent and in 2011, they rose another 13.6 percent.

CASE STUDY: GPA®

ManagementTom Brooker, CEO

Private Equity Partners

Svoboda Capital Partners Northstar Mezzanine Members of Management Prairie Capital

A SNAPSHOT OF GPA

• Providers of specialty substrate solutions to the graphic arts industry.

• Revenues have grown by double digits in six of the last eight years, including in 2010 and 2011.

• Employment has risen 43 percent since 2004 to 93, including nearly half (47) from Illinois.

• Named among Best Workplaces in America by the printing industries for five years in a row.


In December 2004, Svoboda, Collins LLC, now Svoboda Capital Partners, invested

more than $7 million from its Svoboda Fund I to buy out two largely absentee investors

in GPA to acquire the company. The Chicago-based private equity fi rm partnered

with management and Prairie Capital III, a secondary investor.

Svoboda invests in and helps build leading value-added distribution, consumer

and business services companies in the lower middle-market. The fi rm particularly

likes to invest in Illinois and Midwest companies. “The most appealing part is that

these investments are close to us and allow us to work more closely with their

management teams,” explains Rick Harpster, a Svoboda Principal and GPA director.

In June 2010, GPA named Tom Brooker, former president and CEO of Nashua Corp.,

as its President and CEO. That same month, the company acquired Atlanta-based

TEC Papers USA, which became GPA’s fourth distribution center, joining the others

in Connecticut, Chicago and Los Angeles. Refl ecting Svoboda Capital’s nonfi nancial

assistance to GPA, that acquisition was structured and negotiated by the Svoboda

team, which had a relationship with TEC Papers’ prior owner.

In addition to its four main sales and service hubs, GPA also has 11 other third-party

logistic warehouses throughout the United States, as well as one in Canada.

In October 2011, with its Fund I nearing the end of its life, Svoboda Capital Partners

recapitalized GPA and, in effect, renewed its partnership with GPA management.

Svoboda partnered with management, Ellipse Capital and Northstar Capital, which

provided subordinated debt to complete the transaction. PNC Bank provided a senior

debt facility.

Today, GPA employs more than 30 sales representatives and product managers, as

well as others who work closely in partnership with its customers. It has a total of

93 employees, with 47 in Illinois. The company has grown notably since 2004 when it

had 65 employees, with 38 in Illinois.

GPA has been recognized as a leader for its practices and products within its indus-

try with various awards, including the 2012 Jack Glacken award for their outstanding

contributions to the Digital Solutions Cooperative (Dscoop) community. In recent

years, GPA also has won a variety of awards within the printing industry, including a

Gold Ink Award, multiple awards in the International Association of Printing House

Craftsmen (IAPHC) International Gallery Competition, and a Premier Print Award.

The SAVO Group is a Chicago-based market leader in sales enablement. SAVO powers

direct and channel sales teams at the nation’s largest companies, helping to execute

their sales initiatives by providing real-time access to relevant sales materials, subject

matter experts and coaching - anytime, anywhere.

By tracking and analyzing successful behavior, SAVO provides executive insight for

better decision making and performance management. SAVO’s cloud-based architecture

provides mobile applications for the iOS, Android and Blackberry platforms, giving

sellers the most critical content, competitive intelligence and subject matter expertise

at the moment of need.

Founded in 1999, SAVO started out providing custom sales solutions to clients that

included Diners Club, LaSalle Bank and Northern Trust. Over time, it became clear

that the challenges at these companies refl ected a much broader disconnect between

executive initiatives and sales team execution. An inability to manage and leverage

marketing collateral and other sales assets effectively prevented revenue growth.

In response, SAVO developed its own on-demand solution, which continues to

ManagementMark F. O’Connell President and CEO

Private Equity Partners

Sterling PartnersSAP Ventures

CASE STUDY: The SAVO Group®

For the fifth year in a row in 2011, GPA also was named among the Best Workplaces in the Americas by the Printing Industries of America/Graphic Arts Technical Foundation for its exemplary human resource practices and dedication to employee success.

1 0

A SNAPSHOT OF THE SAVO GROUP

• A successful, award-winning, on-demand software company whose revenues have continuously grown (by 20 percent for each of the past seven years).

• More than 200 employees.• More than $25 million in

recurring client bookings from top-tier U.S. companies

improve sales and marketing productivity at major companies. SAVO enhances its

sales-enablement tools constantly. This includes the development of a new social

collaboration application and deep business insight via a new reporting and analytics

engine. SAVO also uses a wide array of eminent partners, from Oracle and Microsoft

to SAP and salesforce.com, to help with its mission.

This journey took time – and fi nancing. When the company fi rst began, three employ-

ees (including its co-founders) were at the helm. In six years, the company expanded

to 30 employees. While SAVO’s organic growth continued each year, executives looked

for an extra push to propel them forward.

In September 2005, Sterling Partners invested $10 million in SAVO. The funds were

used for expansion, including hiring, technology development, marketing and sales

initiatives. This provided SAVO with the needed fuel to expand their growth rate.

Sterling’s contributions also exceeded funding. The fi rm helped SAVO refi ne its

organizational structure as it grew and assisted in developing a business model for

middle-market companies.

In June 2011, SAVO secured $14 million in fi nancing from SAP Ventures and Sterling

Partners. The funds support its rapid expansion and continued innovation of SAVO’s

sales enablement platform.

SAVO’s workforce has grown to nearly 200 nationwide, and its annual revenue

continues to grow year over year (20 percent for each of the past seven years). And, SAVO

receives more than $25 million in recurring client books from top-tier U.S. companies.

The future continues to look bright. Mr. O’Connell, for one, has credited Illinois

and its “incredible” talent pool for contributing to its success. That talent reservoir,

he says, includes new graduates from Illinois-based universities, as well as executive

talent who traditionally have “commuted” from tech companies based on the East

and West coasts.

I V C A 2 0 1 1 A N N U A L R E P O R T 1 1

Private Equity, Public Good, our theme

for this 2011 annual report, captures

what we as an industry and the IVCA as

our representative strive to achieve. It’s

also a timely focus for today, given the

outright assault on our profession this

past election year.

Those attacks have proven a real wake-

up call. They made me think more about,

and better articulate, the value that

private equity and venture capital deliver.

I’ve never had any doubts about that

value, and I’ve always considered what

we do to be an essential contribution to

our broad economy. At the same time,

we’ve all assumed too freely that others

saw us the same way. The reality is, many

people outside our world don’t under-

stand private equity, fi nance or even

capitalism all that well.

This ongoing public conversation we’re

having is a vital one. Long term, a stronger

public understanding will surface about

how capitalism works and about the

worth of private equity and venture

capital. More people will grasp that we

seed promising entrepreneurial ventures

and provide growth capital for existing

businesses. That we shoulder the risk

for entrepreneurs unwilling to gamble

their entire fortunes on their dream.

That we spark economic growth and jobs.

And, yes, that we buy shares in a company

– just like any investor – and hope to

sell those shares and derive capital gains,

again just like any investor. In the process,

we all support the critical ecosystem

of capitalism.

Private equity and venture capital have

proven to have a vast impact on improving

the Illinois economy. Among the con-

tributions of the IVCA is the knowledge

research it generates about the role

our industry plays in Illinois’ economic

development. It’s an impressive one.

I’m pleased to report that the IVCA in

2011 continued to advance its three-

pronged mission statement – to promote

investment in Illinois; to advocate for the

Illinois venture capital and private equity

community; and to serve our membership.

It helps us focus on what activities to

promote and to gauge their value to our

members by aligning efforts along those

three categories. Here’s a quick scorecard:

•Economically, our fi rms are moving

forward. They’re actively trying to raise

money and are largely having success.

In the face of near-record-low interest

rates, private equity is generating double

digit returns5 versus very low-single

digit returns for risk-free investments.

Pension funds that invest in private

equities aren’t fl eeing the category, as

we feared they would after the liquidity

crunch of 2009. And if they are adjusting,

it’s a less dramatic mix shift than might

have happened.

•Our political action committee, thanks

to the leadership of Ellen Carnahan, raised

$90,000 in a watershed political year, up

dramatically, and that’s very important

for our initiatives and supporters.

•The annual December awards gala

continues to be our community’s event of

the year, and the addition of individual

IVCA awards for venture-backed and

private equity-backed Portfolio Company

of the Year, as well as inductees into the

IVCA Portfolio Company Hall of Fame

have generated even more interest in the

event. Not to mention the opportunity to

chat with the individual award winners

and with the true pioneers of our Illinois

private equity community.

•While our legislative agenda was

lighter this past year, our legislative

lunches continue to help spread the mes-

sage that we are extremely interested

in issues that impact our industry and the

Illinois economy. A recent example was

our successful seminar on federal health-

care reform and what’s likely to happen

as a result of the narrow Supreme Court

decision upholding it.

•Our membership is stable and the

IVCA, with Executive Director Maura

O’Hara taking the lead, is playing a more

active role in connecting with the broad-

er venture-related community, including

the Illinois Technology Association and

1871, the new home for digital startups

in Illinois.

We thank Maura, along with Kathy Pyne

and Penny Cate, for making possible most

of what happens at IVCA. I also wish to

thank all the members who served on

our boards and on our committees, and

also all the member fi rms and sponsors

who backed and underwrote our activities

this year. All of you reinforce my view that

Chicago and Illinois are great places to

call home for private equity and venture

capital fi rms and for entrepreneurs.

A Letter from Jim TenBroek

Jim TenBroek, IVCA Chairman

“More people will grasp that we seed promising entrepreneurial ventures and provide growth capital for existing businesses. That we shoulder the risk for entrepreneurs unwilling to gamble their entire fortunes on their dream. That we spark economic growth and jobs.”

5 Preqin Ltd.

1 2

A Letter from Darren Snyder

Darren Snyder, IVCA Chairman

“What’s encouraging is that a healthy ecosystem for Illinois startups has developed, and a new generation of private equity and venture capital investors has appeared and they’re opening up new shops. In addition, the national spotlight is shining on successful Illinois-based technology, advertising and media businesses.”

I am pleased to take the reins of the IVCA

as your chairman from Jim TenBroek and

his sterling stewardship. While the macro-

economic environment continues to be

murky (has there ever been a “normal”

market?), plenty of issues exist for which

we can help make a real difference.

New regulations impacting our industry

continue to arise from recently enacted

legislation. Critical budget and pension

issues that must be addressed to facilitate

long-term economic growth in Illinois

grow ever more pressing. And, of course,

a general misunderstanding of private

equity persists, stoked by political-year

machinations, which requires us to con-

tinue to make the case for how private

equity contributes to the public good in

Illinois and nationally.

What’s encouraging is that a healthy

ecosystem for Illinois startups has de-

veloped, and a new generation of private

equity and venture capital investors has

appeared and they’re opening up new

shops. In addition, the national spot-

light is shining on successful Illinois-

based technology, advertising and

media businesses.

Our IVCA mission for the next 18

months remains consistent with that of

the recent past. On the advocacy front,

we need to:

•Expand upon a history of educating

Illinois lawmakers on the economic role

and benefi ts of our industry. We must

be willing to spread that message to a

broader public audience, especially since

this fall’s election will elevate the dia-

logue. It’s critical that we articulate the

public good that our industry provides.

•Make certain we continue to

represent the entire industry, continu-

ing to recruit the new crop of investors

growing their presence in Illinois as well

as industry stalwarts. We’re thrilled to

have attracted such new members as

Lightbank, Generation Growth Capital and

BlueCross BlueShield Venture Partners.

New and existing private equity funds are

focusing heavily on operating partners

and expanding governance and strategic

resources. As a result, they’re adding more

value to their businesses than ever before.

To serve our members, we must:

•Continue our educational and net-

working agendas, particularly as new

regulations go into effect for our industry

and the industries in which we invest.

•Support the growing ecosystem for

startups and young companies, including

the new technology hub for startups

called 1871 at the Merchandise Mart as

well as the Booth School of Business

New Venture Challenge. The Challenge

has launched more than 75 companies

that have gone on to raise more than $242

million in funding and to create more

than 1,000 jobs.

•Continue improvements in our

branding, our website and our corner-

stone event, the IVCA Annual Awards

Dinner in December.

We will continue to promote the Invest

in Illinois campaign by partnering with

and supporting the initiatives of Mayor

Emanuel’s offi ce and the state treasurer’s

Technology Development Account.

More opportunities exist today than

ever before to make successful invest-

ments and build terrifi c companies. The

spotlight on private equity gives us a

unique chance to elevate our standing

as a distinct driver of growth and jobs

in our economy.

For IVCA, this furnishes a stage to

discuss how Illinois private equity and

venture capital businesses possess a

Midwest style. It’s an honest approach,

a realistic yet entrepreneurial vision, a

collaborative style that cares about the

people and the profi ts. It’s doing what

you say. It’s about values. It’s the willing-

ness to make long-term investments.

We need all our members and those

who appreciate what private equity does

to help us achieve this ambitious but

important mission.


Jan. 18, 2012: IVCA members contributed $90,700 to the IVCA-PAC in 2011, making

it the most successful campaign ever. Eleven member fi rms donated $10,000 or more on

a three-year rolling average. The IVCA-PAC board pledges to continue to contribute

strategically to Illinois General Assembly candidates in a manner that helps foster a

positive investment climate in the state. It also will continue to provide information

on the candidates it supports.

Dec. 5, 2011: More than 420 people attended the 10th Annual IVCA Awards Dinner at

the Four Seasons Chicago ballroom, with Kirkland & Ellis LLP again serving as

Presenting Sponsor. Portfolio Company awards went to Accretive Health and Great

Kitchens. SPSS, Inc., joined the IVCA Portfolio Company Hall of Fame. Individuals

honored: Brian P. Simmons, CHS Capital, received the Stanley C. Golder Medal and

Scott F. Meadow, professor at the University of Chicago’s Booth School of Business,

received the Richard J. Daley Medal. The 2012 dinner will be held on Dec. 3.

Nov. 15, 2011: The IVCA Toolkit presentation focused on buyer behavior after the

sale of a portfolio company, delivering insight on how these complex negotiations

ultimately are resolved through the escrow process. Panelists were Paul Koenig,

Managing Director of SRS; Rob Verigan, Partner at Sidley Austin LLP; and Chris

Girgenti, Managing Partner of New World Ventures. Sponsors were SRS/Shareholder

Representative Services and Sidley Austin LLP.

Sept. 28, 2011: Investing in health care in an uncertain environment served as the topic

of an IVCA luncheon, sponsored by GE Capital’s Healthcare Financial Services. Panelists

were Matt Downs, Sandbox Industries; David Koo, RoundTable Healthcare Partners;

David Katz, GTCR LLC; and Jim Pavlik, Baird Venture Partners. Brian Pottinger, Managing

Director of GE Capital’s Healthcare Financial Services, was moderator.

June 30, 2011: The IVCA board added three new members to serve three-year terms

ending June 30, 2014. They are Thomas Danis Jr., Managing Principal, RCP Advisors;

Constantine S. Mihas, Principal, GTCR; and R. Craig Collister, Senior Partner, Round-

Table Healthcare Partners. The board also welcomed Jeffrey Diehl, Partner, to the Adams

Street Partners’ board seat, replacing Thomas Berman, who has served since the IVCA

was founded; and Robert Finkel, Managing Partner of Prism Capital, who rejoins the

board. Diehl’s term expires in June 2015 and Finkel’s term expires in June 2013.

June 14, 2011: “Homegrown Successes: Serial Entrepreneurs” was the topic of an IVCA

luncheon that featured four such entrepreneurs. The event was sponsored by the Neal,

Gerber & Eisenberg law fi rm and one of its partners, Michael Gray, served as moderator.

Lon Chow of Apex Venture Partners helped coordinate the event, which featured

entrepreneurs Brian Hand of Timelines, Eric Lunt of BrightTag, Al Warms of Appolicious

and Alex Zoghlin of VHT.

IVCA News & Events

The importance of creating new sources of venture capital in Illinois cannot be overstated. Although venture capital-backed companies accounted for 11 percent of private-sector employment in 2008, they generated nearly $3 trillion that year – 21 percent of U.S. GDP. Additionally, these companies have helped to create, not only new jobs, but entire new sectors, such as biotechnology, semiconductors, software and the Internet.−Report of the (Illinois) Economic Recovery Commission, 6/24/10

14

May 20, 2011: The IVCA joined Gov. Pat Quinn in launching the Illinois Innovation

Network that aims to give entrepreneurs the resources to build and grow their

businesses and create more jobs. It’s the fi rst initiative created by the Governor’s

Illinois Innovation Council, a public-private partnership launched in February 2011 to

accelerate innovative economic development and job-creation efforts in the state’s

startup sector.

May 11, 2011: At the Annual IVCA/NVCA luncheon, Chicago Mayor Rahm Emanuel

told attendees that his job “is to create the conditions for you to create jobs” because

“city government does not create jobs. Creating jobs is your job.” He added that he

must make Chicago “an exciting place to live, so you have the talent pool that will not

make it a struggle to start up a company.” The event was sponsored by Baker Tilly

accounting/advisory fi rm, and Ropes & Gray LLP law fi rm. Also featured were Mark

Heesen, president of the NVCA, and Doug Lowenstein, then president of the Private

Equity Growth Capital Council. IVCA Vice Chairman Darren Snyder moderated the

luncheon program.

April 27, 2011: A get-acquainted meeting with 16 IVCA members and Rep. Bob Dold

(R., Ill.) kicked off the 2011 IVCA Legislator Meeting Series. Among the topics discussed

were the cost and compliance burden of Dodd-Frank regulations on small and

mid-sized fi rms and the negative impact on new product introduction from slower FDA

review of these products.

March 30, 2011: The IVCA-PAC board adopted new “pay to play” policies and proce-

dures that ensure compliance consistent with SEC rule changes, Municipal Securities

Rulemaking Board rules and Illinois law. One change will guarantee that continuing

annual contributions to the political action committee won’t limit a fi rm’s ability to

access state and pension funding within its base of Limited Partners.

March 9, 2011: An IVCA luncheon examined new opportunities for liquidity for share-

holders of private companies via private shares marketplaces. Danielle Hughes of

Divine Capital Markets explained the four marketplaces, which include SecondMarket,

GATE Technologies, Xpert Financial and SharesPost. Also participating were Jeremy

Smith of SecondMarket, the largest marketplace and Michael Gray of Neal Gerber

& Eisenberg LLP, who also moderated the audience Q &A.

Feb. 15, 2011: IVCA hosted a lunchtime webinar with Reed Smith that examined

portfolio company executive compensation. It was part of IVCA’s Toolkit series and

featured Brad Schmarak and Seth Hemming, global co-heads of Reed Smith’s Private

Equity Group, as moderators; John Martini, chair of the fi rm’s Tax, Benefi t & Wealth

Planning Group; and James Tandler, head of the fi rm’s Tax Group.

“When you look at what makes up the basic building components of a very successful economic culture in a startup community, it is the entrepreneur, the research institutions, the fi nancial backing, as well as the coaching that comes from successful entrepreneurs to help young entrepreneurs who have new ideas to nurture them, sponsor them and encourage them to succeed.”−Chicago Mayor Rahm Emanuel, at IVCA/NVCA luncheon, 5/11/11


2011 OFFICERS COMMITTEE

Governance

2011 EXECUTIVE COMMITTEE

2011 STAFF

MAURA O’HARA

Maura has been Executive Director of IVCA since 2003. She oversees all aspects of the Association and represents IVCA in the community.

MARK GLENNON

Treasurer: 2009-2011Ninth Street Advisors

JAMES TENBROEK

Chairman: 2010-2011Vice Chairman: 2009-2010Secretary: 2008-2009Wind Point Partners

PENNY CATE

Penny is IVCA’s Government Affairs representative. Since 2004, Penny has led IVCA’s legislative efforts and develops strategies for IVCA’s Legislative Committee and IVCA-PAC.

LEE M. MITCHELL

Secretary: 2010-2011Thoma Bravo, LLC

ELLEN CARNAHAN

IVCA-PAC Chairman: 2010-2011 Chairman: 2009-2010 Vice Chairman: 2008-2009 Machrie Enterprises

KATHY PYNE

Kathy is the IVCA’s Association Coordinator and is responsible for events, member communications and database management. Kathy joined IVCA in 2005.

DARREN SNYDER

Vice Chairman: 2010-2011Secretary: 2009-2010Treasurer: 2008-2009Prairie Capital

ELLEN CARNAHAN IVCA-PAC Chairperson

ROBERT FEALYTreasurer – IVCA-PAC

MARK GLENNON IVCA Treasurer, Co-Chairman – Research

JOHN HOESLEY Co-Chairman – Research

JIM MACDONALD Chairman – Events

LEE M. MITCHELLIVCA Secretary

LAURA PEARLChairperson – Membership

DARREN SNYDER IVCA Vice Chairman, Chairman – Legislative

JIM TENBROEK IVCA Chairman, Co-Chairman – Institutional Investors Chairman– Executive Committee

STEVE VIVIANCo-Chairman – Institutional Investors

JEFF ZILKA Chairman – Marketing & PR

MAURA O’HARAIVCA Executive Director

1 6

Adams Street Partners, LLC

Andersen Pacifi c Corporation



Baird Private Equity


Barnes & Thornburg LLP

BDO Seidman, LLP

Beecken Petty O’Keefe & Co.

Bessemer Trust Co.


*BlueCross BlueSheildVenture Partners

Burke Warren

CapX Partners

CBRE Group

Cendrowski Corporate Advisors

Ceres Venture Fund

Chicago Growth Partners

*Chicago Teachers Pension Fund

Chicagoland Entreprneurial Center

Chrysalis Ventures

CHS Capital

Coinstar, Inc.

Cressey & Company, L.P.

Deloitte & Touche

DFJ Mercury

DLA Piper, LLP (US)


Dunrath Capital

Edelman

Edwards Wildman

The Edgewater Funds

EmPower HR

Member list

*Lightbank

Linden LLC

*Lockton Companies

Machrie Enterprises

Madison DearbornPartners

Martin Partners

Matthew Pritzker Company

Mayer Brown LLP


McGladrey

McGuireWoods LLP


Mid Oaks Investment LLC

MK Capital

*Monroe Capital


MVC Capital

Neal, Gerber & Eisenberg, LLP

New World Ventures

Ninth Street Advisors


Northwestern University

- The Larry and Carol Levy Institute for Entrepreneurial Practice


Origin Ventures

*Otherwise, Inc.


Patriot Capital

PPM America Capital Partners

Prairie Capital

PricewaterhouseCoopers

Prism Capital

*The Pritzker Group

Quarles & Brady LLP

Ernst & Young LLP

Financial Investments Corporation

First Analysis

Freeborn & Peters

Frontenac Company

*Generation GrowthCapital, Inc.

Golder Investment Management, LLC

*Greenberg Traurig

GTCR LLC

*Harrison Street Capital

Heizer Center, Northwestern University, Kellogg School of Management

Horwood, Marcus & Berk Chtd.

Houlihan Lokey

*Hyde Park VenturePartners

*IZA Fund

Illinois Municipal Retirement Fund

* Illinois State Boardof Investment

Illinois State Treasurer

IllinoisVENTURES, LLC

JK&B Capital

*Jones Day

JP Morgan

K&L Gates

Katten Muchin Rosenman LLP

Kaye Scholer LLC

KB Partners

Kelley, Drye & Warren LLP


KPMG LLP


LaSalle Capital Group

Lazard Middle Markets

RBS Citzens

RCP Advisors

Reed Smith LLP

River Cities Capital Funds

Ropes & Gray LLP

RoundTable Healthcare Partners

Sandbox Industries

Seneca Partners, Inc.

*Sidley Austin

Silicon Valley Bank

SNR Denton

Spencer Stuart

Square 1 Bank

State Universities Retirement System

Sterling Partners, LLC

Stern Cassello & Associates

Svoboda Capital Partners LLC

Teachers’ Retirement System of Illinois

Thoma Bravo, LLC

Thompson Flanagan & Co.

Tribune Company

Ungaretti & Harris

University of Chicago Booth School of Business

University of Illinois

University Technology Park at IIT

Vedder Price P.C.

Water Street Healthcare Partners


Wind Point Partners

Winona Capital Management

Winston & Strawn LLP

WP Global Partners

WTAS LLC

Wynnchurch Capital, Ltd.

Zebra Technologies Inc.

Investor fi rms in bold *New Members

Adams Street Partners


CHS Capital


GTCR LLC

IllinoisVENTURES

KPMG

Madison Dearborn Partners

Mayer Brown LLP



Neal, Gerber & Eisenberg LLP

New World Ventures

Reed Smith

Ropes & Gray

Sidley Austin

SNR Denton

Spencer Stuart

Square 1 Bank

Sterling Partners

The Pritzker Group

Thoma Bravo LLC


Wind Point Partners

Adams Street Partners LLC



Baird Venture Partners

Beecken Petty O’Keefe & Company

Duchossois Technology Partners LLC

Dunrath Capital

Ernst & Young LLP

First Analysis

Frontenac Company

KB Partners


Mid Oaks Investments LLC

MK Capital


New World Ventures




Prairie Capital

Prism Capital

Silicon Valley Bank

Sterling Partners

Svoboda Capital Partners

The Edgewater Funds

Thoma Bravo, LLC


Wind Point Partners

IVCA FOUNDING MEMBERS

Provide outstanding support for IVCA in the form of services and/or the highest levels of event sponsorship


Edelman

Edwards Wildman



McGladrey

Silicon Valley Bank

SPONSORING MEMBERS

Have sponsored at least one event during the year

SUPPORTING MEMBERS

Design: Avila Creative, Inc. Editorial: Edelman Primary Photography: Steve Ewert PhotographyInfographic Illustration: Dale Glasgow & AssociatesPrinting: The Fox Company

How a Private Equity or Venture Capital Fund Works

The fi rm creates an investment “fund” to invest in private companies from “Limited Partners,” typically:

– Pension funds – Endowments– Foundations

The fund considers thousands of companies.

The fund typically acquires a companythat can grow significantly with skills and investment:

– Updated business strategy – Additional talent– New equipment & facilities– R&D

The company’s value grows signifi cantly. After 3-5 years of focused effort, the company is worth significantly more than at time of investment.

The fund invests in 7-10 portfolio companies over the fund’s life.

The fund closes. Each portfolio company is sold when a good price is offered. When all of its companies are sold, the fund closes. The initial investment plus profits are distributed:

– 80% of profits go to Limited Partners

– 20% of profits stay with the fund as “carried interest”

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The Case for an Essential Industry

Private Equity | Public Good

Giordano’s

PeaPod

Ulta saPPhire enerGy

deVry UniVersity

Bioniche PharmaorBitzschool of rock

ati Physical theraPy

2011 annUal rePort

these nine companies, the majority in illinois, reflect the breadth of american industries. they are or have been backed by private equity firms; the majority by illinois firms. they represent the significant contribution that private equity makes to the american economy.

more than 14,200 U.s. companies, employing 8.1 million people, are owned by 2,300 private equity firms.

ATI PHYSICAL THERAPY

PEAPOD

SAPPHIRE EnERgY

ORbITz WORLDWIDE

gIORDAnO’S

bIOnICHE PHARMA

DEVRY UnIVERSITY

SCHOOL OF ROCK

ULTA

sponsoring members

2011 ivca - private equity, private good

Investor Relations