economic development, dropped at least 17 percent in the second quarter, according to Growthink Research, a leading investment research firm based in California. It reported that $49.7 million wasraised here, compared with $60 million in the first quarter.

About $4.2 billion was raised nationally for a slim 1.2 percent drop, showing that Illinois continues to lag in its efforts to attract more venture funding to the state. The entire Great Lakes region, with its total of $130 million raised, fared no better, landing in the penultimate spot on the list comparing all sections in the country.

Other groups that collect venture capital data, the Ernst & Young/ VentureOne U.S. Venture Capital Survey and the MoneyTree Survey (www.pwcmoneytree. com), reported respectively that $4 billion and $4.3 billion was raised nationally.

All three research units reported a substantial increase in health-care and biotech funding, showing that VCs are focused on this high-growth, long-term investment area. This might explain why Illinois fared so poorly, since zuChem, a local upstart that develops better processes for making specialized sugars used in food, drugs, agriculture and fragrances, was the only biotech company that reported new funding in the second quarter.

“This shows that we have a lot more work to do to make people aware of the investment opportunities locally,” said David Miller, president of the Illinois Biotechnology Industry Organization.

“A lot of investors wanted to preserve their money, and they didn’t have any great rush to write a check,” said Rajni Aneja, vice president of corporate development for zuChem. “Investors had a lot of options. It’s a very competitive market, and it’s a validation of our work that we received funding.”

Miller noted that Illinois has to get serious to take advantage of the opportunities for future economic growth. “There is a lot of great discovery here [of new technologies and treatments], and we need to improve translating these discoveries into products and companies,” he said. “We also have to get more of the very early- stage funding for companies or there won’t be companies to get the later funding.”

Second-quarter highlights

In spite of Illinois’ poor showing on the national venture capital landscape, some local companies did get the attention of investors, and they are using an infusion of new capital to grow their companies.

Sarvega raised a relatively large sum of $10 million in the second quarter to expand the customer base of its proprietary XML (Extensible Markup Language) appliances, which help companies retrieve and manage data inexpensively. The economic impact is significant.

“Since 2000 we have added about 40 people,” said Sarvega’s co- founder and CTO Sunil Gaitonde, “and we could double that number over the next two years.”

ZuChem raised a modest $850,000, but is ambitious in putting that money to work.

“We’re very pleased with the progress we’ve made so far,” said David Demirjian, president and CEO of zuChem. “We’ve grown to 10 employees, in addition to adding key advisers and collaborators to our team. 2004 will be a key year for the company as we launch our first products.”

ZuChem’s funding includes $300,000 from the Illinois Development Finance Authority, a unit that makes equity investments in state companies to help promote economic development. Late last month, zuChem acquired a portfolio of patents from a Finnish firm to dev- elop better ways to produce D-mannitol, a reduced calorie sweetener.

“ZuChem is a perfect example of how organized early-stage capital can be leveraged and where the strong partnership between public and private sectors will catalyze the growth of a promising new technology company,” said investor Tom Churchwell from ARCH Development Partners.

Some of the other local companies that were successful in raising fresh capital in the second quarter include ExpandBeyond, which produces mobile software for IT management; Alacritude, which offers online research services; BEZ Systems, which offers software to manage large data warehouses; GolfServ, which offers online golf content and products, and Rubicon Technology, which makes advanced technology materials like single crystal sapphire.

Darcy Evon is editor of i-Street magazine, a monthly publication for the technology industry, and the i-Street Reporter, a weekly online newsletter.