The $84M question: Who gets the money from InvestMaryland program? -- Gazette.Net


Maryland's business community last year hailed the state's new InvestMaryland program, the centerpiece of Gov. Martin O'Malley's economic development legislative package in 2011.

But on Thursday, executives challenged state officials, saying the $84 million program may be giving short shrift to biotechs and other companies seeking early-stage funding.

Officials with the Maryland Venture Fund Authority, which oversees the program and the state's other investment programs, hosted the forum at Johns Hopkins University's Rockville campus to update the public on its progress. More than 200 people, including representatives of more than two dozen early-stage companies, attended.

The authority's next key step is to review applications from venture capitalists vying to make the initial investments from the program. The review is scheduled for June 28, with an announcement expected in July. The authority hopes to deploy the funding, at $5 million to $6 million per venture capital fund, during the next 18 months.

Atlius Associates of London was contracted in December to assist the authority in the selection process. Selected venture capitalists must have at least $500,000 to invest, two principials to direct the investment, an office in the state and five years' experience in venture investments.

“We've achieved all our milestones and are on target. We've created a model that's going to be taken on the road and be a national model,” said Peter Greenleaf, chairman of the authority and president of MedImmune in Gaithersburg.

Greenleaf added that the online auction in March that raised the $84 million from insurance companies buying tax credits was “the most successful in the history of programs in the nation.”

'Early-stage capital is where the crisis is'

Many of the businesspeople peppered the hosts with questions about InvestMaryland's implementation.

Some said they are concerned that only nine of the 37 venture capital applicants specialize in biotechnology. The majority, 21, focus on high-technology and information technology, said Michael J. Howard, subcommittee chairman of the authority and managing member of the MJH Group.

“The majority of technology companies in Maryland are life sciences, so people want to see more money in that direction,” Greenleaf said after the forum. “We're going to look at which are the best investments to make.”

Frank Dickson, program manager for the Maryland Venture Fund, which will receive 24.5 percent of the $84 million to invest itself, said his program historically has seen a 40-60 split between biotechs and other technology companies.

Some suggested more priority should be given to early-stage businesses. Through both venture capital firms and the Maryland Venture Fund, about half of the state's investment funding is concentrated on such companies.

“Early-stage capital is where the crisis is,” said John Backus, founder and managing partner of New Atlantic Ventures in Reston, Va. He said that while angel investors are funding the youngest startups, the companies often struggle once they reach the next stage.

“We'd like to see more allocation to early-stage funding,” Backus said.

Greenleaf said the state must balance the need for early-stage investment with the ability to make a return on its investment.

“We can't go early on everything,” he said, adding that early-stage investments often take more time to show returns and can be risky.

While expressing her support for InvestMaryland's efforts, Kyp Sirinakis, managing partner of Rock Spring Ventures in Bethesda, argued after forum that “it's a misnomer that investors in early-stage companies don't make money.”

Rock Spring is among the venture capitalists being evaluated for the program.

“Venture capital doesn't come to Maryland,” said Frank A. Robey, president and CEO of AriaVax in Gaithersburg, after the forum. “This is the state trying to get its act together. It's a start.”

Robey also asked whether Maryland's billion-dollar companies, such as MedImmune, could be incentivized to collaborate more with small businesses.

William Gust, CEO of Plasmonix in Baltimore, suggested that companies that receive money from the Maryland Venture Fund may become more attractive to other investors.

“Eighty-four million dollars is unfortunately not enough to fill everyone's pockets in this room, especially not life science companies, which can require hundreds of millions of dollars,” Dickson said. “But we're looking to be a little part of the gas that's going to start the fire. Many people are coming to the party; the state's just one part of that.”

Dickson said his fund has leveraged $65 million in returns from the state's initial $25 million investment in fiscal 1994.