Montgomery County considering taking equity in local companies

December 23, 2012

Montgomery County is weighing whether to start taking equity in local companies, hoping to get a higher return on some on its capital investments.

County officials are preparing a bill that would allow the government to take up to 25 percent ownership in businesses that are starting, growing or relocating in Montgomery. The measure would give government officials more options for investment deals beyond simply requiring firms to add a certain number of jobs and lease a certain amount of space.

“Right now, we can only use those two requirements when we want to support a company,” Steve Silverman, the county’s economic development chief, said in an interview. “This legislation would allow us to get a greater return on our investments by asking companies for a small piece of the action.”

Capital for the equity investments would come from the county’s existing Economic Development Fund. The idea, Silverman said, is to continually reinvest some of the county’s returns back into other growing businesses.

County officials have yet to flesh out all the details of the proposal, including exactly how much funding and returns would be expected or required. There are also lingering questions about the county’s cash-out options if companies in its portfolio go public or raise additional private capital.

Maryland’s state government already adopted similar legislation and created a seed and early-stage venture fund in 1994. Montgomery’s council members have expressed support of the concept in the past, and Silverman said he expects them to take action on the bill no later than February.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.
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