A Hunt Valley venture capital firm is the first to receive funds from the state’s new $84 million InvestMaryland program.
Grotech Ventures will receive $12 million to invest in early-stage companies. If the recipients are successful, Grotech will return 100 percent of the principal investment and 80 percent of its profits to the state’s general fund.
This week’s announcement marks the next major step for the program, a key economic development initiative of Gov. Martin O’Malley (D) that the General Assembly approved in 2011. The state raised the $84 million this year through an online auction of tax credits to insurance companies that operate in Maryland.
Grotech was selected by independent consultant Altius Associates of London, which was chosen to oversee selection of the private venture firms.
“We wanted to see experience in investing in Maryland and know that they know the lay of the land,” said Christian S. Johansson, secretary of the Department of Business and Economic Development. The state had no direct say in Grotech’s selection, but the firm represents a “first-class” fund, he said.
The selection was approved by the Maryland Venture Fund Authority, which oversaw the auction and oversees selection of the venture firms.
The firm was especially appealing because of its “long history in investing in early-stage technology companies in Maryland and overall solid record of investment,” Peter Greenleaf, chairman of the authority and CEO of MedImmune in Gaithersburg, said in a statement.
Companies in Grotech’s investment portfolio include BroadSoft of Gaithersburg, Hillcrest Labs of Rockville and iBiquity Digital in Columbia.
Officials at Grotech, which supports early-stage companies through investments starting at $500,000, said they were unable to comment because of legal restrictions on public statements during their fundraising period.
More than 37 venture firms have applied to InvestMaryland, Johansson said. The authority will select up to eight.
“Maryland is a diverse economy, so we want diversity in our investors,” he said. “We don’t want them all in one industry.”
The authority expects to announce more venture firms in the next month or two, said authority member Gina Dubbe. Dubbe is managing partner of Walker Ventures in Glenwood.
‘More dry powder to deploy’
While $56.4 million of InvestMaryland’s money will go to private venture firms, $20.7 million will go to the Maryland Venture Fund. That fund has already awarded $250,000 to BrainScope in Bethesda, $560,000 to Maxtena in Rockville, $400,000 to Bambeco in Baltimore and $200,000 to PathSensors in Baltimore.
Over the last few years, the 17-year-old state investment fund has faced financial difficulties, but the InvestMaryland money means it can now continue to back companies it once invested in, said Thomas Dann, managing director for the fund.
The fund has invested almost $1 million in follow-up funding this year. A top priority has been investing in the fund’s existing backlog of portfolio companies, Dann said.
“We have more dry powder to deploy,” he said, adding that a few other resources ensure the fund has about $45 million to invest over the next three years.
Last year, the fund invested about $5 million.
Dann said InvestMaryland also allows his fund to make investments without requiring companies to have matching funding, meaning the fund can serve as the leading or sole investor.
“It’s more of a ‘lean forward’ strategy,” he said, and the state will probably see more smaller investments. “We’re really looking for the opportunity to make an impact on investments.”
The fund was originally seeded with $25 million and has generated a $67 million return, 2,000 jobs and more than $1 billion in private investment, according to state information.