Leaders in Peoria, Ill. Work to Bring New Energy to Local Economy

February 7, 2006

PEORIA, Ill. – Civic leaders in Peoria, Ill. boast of becoming “the preferred Midwestern region” of technological discovery, implementation and commercialization by 2015. A $12 million incubator and a $2.5 million defense contract for a local start-up (a Caterpillar spin-off) are ingredients that may help the community achieve that aim.

On Feb. 3, the Peoria NEXT Innovation Center broke ground on Main Street. The 50,000-square-foot incubator, which will offer wet labs, small business development services and an introduction forum to capital markets, is expected to open its doors in the spring of 2007.

Peoria NEXT is a collaborative effort between Caterpillar, Bradley University, the Peoria Agricultural Lab and the local health-care community.

Caterpillar represents nearly 70 percent of the $1 billion invested in applied research annually by local entities, says Jim McConoughey, CEO of the Heartland Partnership and leader of the commercialization team for Peoria NEXT.

McConoughey says multibillion-dollar companies like Caterpillar invest in research and development not only to fund direct corporate initiatives but also to provide a “support system” within the communities where they are based.

Inspired by Eli Lilly’s efforts in Indianapolis, Caterpillar took inventory of its intellectual assets and “was surprised by the amount of money they had,” McConoughey said. “They figured, if they spin out, license or put equity [into their intellectual property], they have a real strategic advantage in shoring up an economic development platform and making money on it.”

The poster child for emerging Caterpillar spinouts is Firefly Energy, which develops batteries with lightweight graphite rather than lead. The change of composition yields lighter, cheaper and better-performing sources of portable energy that is environmentally friendlier than lead-based batteries, Firefly says. Since spinning off from Caterpillar in May 2003, Firefly has raised some $7 million in venture capital financing.

“The good news is everybody gets batteries,” said Mil Ovan, co-founder and senior vice president of Firefly Energy. “People have been frustrated by the lack of better improvements in batteries. We think our technology will offer something markedly better.”

Last month, the U.S. Department of Defense appropriated $2.5 million to Firefly to develop advanced battery technologies for military use. The company is currently raising a $10 million Series B round of financing that it expects to close in May.

In addition to Caterpillar, existing investors include Northbrook, Ill.-based venture capital firm KB Partners, multibillion-dollar appliance manufacturer Electrolux, defense contractor BAE Systems and the Illinois Finance Authority.

The Illinois Department of Commerce & Economic Opportunity and the Illinois Technology Development Alliance (ITDA) helped Firefly to secure debt and equity financing.

“Firefly is a very interesting opportunity for everybody,” said Byron Denenberg, managing director of KB Partners. “(Former Caterpillar Chairman) Glen Barton is a very progressive guy [who] was looking for ways to diversify the economic structure of Peoria. He spearheaded the whole thing.”

Ovan says proceeds from the Series B round will go toward bringing Firefly batteries to Electrolux by “the later half of 2007”. The company currently occupies 8,500 square feet of office and lab space in a new building within Illinois Central College and has recruited its employees from both the region and nationwide (including one from Bulgaria).

“Peoria is probably the state’s best-kept secret in terms of being a beautiful community,” Ovan said. “It’s a little big city and the whole community has been extremely supportive.”

Other relatively newcomers to the Peoria community are zuChem, a developer of specialized sugars that has raised $2 million since spinning out from the Peoria Agricultural Lab in 2002, InformMed, a developer of devices to monitor medication dosing at hospitals, and Akoya, a Caterpillar spinout that develops procurement monitoring software.

Akoya and zuChem are also backed by ARCH Development Partners, a Chicago-based early stage venture firm that puts on bimonthly venture capital breakfast demonstrations in Chicago and Peoria with the ITDA.

Reprinted with permission from ePrairie.