Feds Look to Liquidate Chicago-Based Venture Fund

Cardinal Growth, a Chicago-based venture capital firm that raised nearly $51 million from the U.S. Small Business Administration for two funds, is on the verge of being shuttered, according to the Chicago Sun Times.

The paper is reporting that the fund owes Uncle Sam $21.4 million, and that the SBA is “seeking to liquidate Cardinal Growth L.P. because of mounting losses that threaten the fund’s ability to repay the taxpayer money it got from the agency.”

It doesn’t sound like Cardinal is putting up much of a fight. Last week, after a federal judge ordered the firm’s founders, Robert Bobb and Joseph McInerney, to turn over their records to the SBA, their attorney told the Sun-Times, “There’s been significant write-downs on the portfolio. If a company is not performing well, you have to write down its value.’’

Thomson Reuters data shows that the firm raised at least $64 million over its 11-year history, including a $24 million fund that closed in 1999 and a $39.7 million fund closed in 2008. (The latter fund was targeting $100 million, according to an SEC filing.)

Presumably, the total amount of funding raised was slightly higher overall, given that SBA caps its low-cost loans at three times the amount that an investment firm raises through private investors.

Cardinal Growth made unwanted headlines in 2007 owing to its involvement in Municipal Sewer Services, a now-defunct sewer inspection and cleaning company that landed numerous contracts from Chicago City Hall when then-mayor Richard Daley was in charge. (Daley occupied the office from 1989 through May of this year.)

Daley’s son Patrick worked for Cardinal at the time. Indeed, the Sun-Times reports that he was paid $1.2 million by the firm between 2002 and 2009. But not only was Cardinal an investor in Municipal Sewer Services, but Patrick reportedly was, too, and the paper says the sewer company never disclosed his ownership stake to the city.

Earlier this month, the Sun-Times reported on another relationship that cast an unflattering light on Cardinal. According to the paper, Concourse Communications, a Cardinal portfolio company, won a lucrative contract in 2005 to provide wireless Internet service at the city-run O’Hare and Midway airports. After selling in 2006 to Boingo Wireless for $45 million, the company reportedly paid Patrick Daley $708,999 for acting as a middleman.

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