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Correction to This Article
The column incorrectly identified Marty Zugg as the chief executive officer of Sequella. He is the company's chief financial officer.
Biotech Start-Ups Show Dedication, Line Up Again for Tax Credits

By Kim Hart
Monday, June 29, 2009

Last year, Scott Allocco spent 12 hours sitting on a downtown Baltimore sidewalk, waiting to turn in his application to get a tax credit for the angel investors who'd promised to give money to his cancer diagnostics company, BioMarker Strategies. He was the third company in line.

This year, he was the first. He showed up at the University of Maryland's BioPark facility Friday at 10 a.m., armed with a borrowed air mattress and sleeping bag. He and other company executives will wait in the building's auditorium, which is available to them for the first time this year, for five days. They can't formally turn in their application until 9 a.m. Wednesday, and the tax credits are given on a first-come, first-served basis. Since 2006, 38 firms have received the credits. By the end of the day Friday, when his chief executive, Karen Olson, relieved him of waiting duty, representatives of 10 other companies had already lined up behind him.

"This shows how important this program is to biotech start-up companies and how important it is for Maryland to increase funding for the program," Allocco said, adding how relieved he was that companies could wait inside the building, where there is a gym, a shower and carpeted floors, rather than on the side of Redwood Street. "I was concerned that in this economy there would be great demand for these credits."

The popular program encourages investment in Maryland biotechnology start-ups by letting investors receive a tax credit for 50 percent of the money they put into eligible companies. The state provides $6 million a year for the tax credits. The funding for the program was in danger of getting slashed this year due to tightened budgets, despite Gov. Martin O'Malley's efforts to increase it. The credit cannot exceed $50,000 for individual investors and $250,000 for corporations and venture capital firms.

"I had worked hard to attract investors and I felt I had an obligation to protect their tax credits," Allocco said.

Word that the line was forming spread quickly through the biotech community. By 10:45, Marty Zug, chief executive of Sequella in Rockville, which develops treatments for infectious diseases, arrived in the third slot in line. A scientist relieved him later in the afternoon. Zug planned to return today.

Alternative fuel-producing firm Zymetis of College Park was second in line. Gliknik, a Baltimore firm that develops drugs for autoimmune diseases, was fourth.

"Everyone's scrambling right now to figure out how to cover five days' worth of line-waiting," Zug said. "Every year it seems to get more and more competitive. We've got people willing to give up their weekend and are going to stay there for the duration."

Brave New World

Federal employees, agency officials, lawyers and government contractors piled into a small ballroom at the Washington Court Hotel on Capitol Hill last week to discuss one of the largest questions in Washington technology: How can the government use social media and other Web 2.0 tools without jeopardizing privacy and security?

The Department of Homeland Security organized the two-day conference to share ideas of how to develop policies so agencies and employees will feel comfortable using blogs, wikis, Twitter-like news feeds and internal social networks.

"Maybe social networking isn't the right technology for people to interact with the government," said Jay Stanley, a director of the technology and liberty program for the American Civil Liberties Union, while his former colleague and new Facebook lobbyist Tim Sparapani listened in the audience. "Are you friending Barack Obama or the entire White House? The government's on a collision course."

Tim Jones, manager of activism and technology for the Electronic Frontier Foundation, said "there is a stronger expectation of privacy when you're dealing with the government rather than ordering a pizza online . . . . This is an opportunity for government to create new technology."

Jonathan Cantor, executive director for privacy and disclosure for the Social Security Administration, said federal employees need to be educated about whether it is appropriate to share personal views on a federal Web site.

And how can agencies monitor comments from citizens without violating First Amendment rights?

"If the government is deciding not to post off-topic comments, there will be big issues," said Aden Fine, senior attorney for the ACLU, adding that there could be concerns with allowing the government to pick and choose which links to permit individuals to post on government forum sites."

There are also questions surrounding how the government can use social networking tools to gather its own information about citizens. Some say it's a breach of privacy. Others, including Mark Drapeau of the National Defense University, say it is a source of invaluable insight into what citizens think.

"If Wal-Mart can look at Twitter to see how it should stock its shelves, why should it be different for government?" asked Lena Trudeau, vice president of the national Academy of Public Administration.

No real answers came of the panels, but there will undoubtedly be more conferences to discuss these thorny issues.

Venture Capital Success

Most venture capital firms haven't had much luck raising money this year -- in fact, it's the biggest funding dry spell for investors in the past six years, according to the Arlington-based National Venture Capital Association.

But ABS Partners, a Baltimore-based investor, last week announced it had raised its sixth fund, which totaled $420 million. (The firm's previous fund totaled $300 million.)

ABS attributes its fundraising success to the good returns it has been able to give its limited partners. One of its major investments -- Rosetta Stone of Arlington -- was the only area company to go public in the past year. ABS also led another portfolio company, Alarm.com, in the $27 million buyout from its parent company, MicroStrategy, this year.

"The fact that there's a tough public offering window and has been for seven or eight years has been a good thing for us," said ABS managing partner Phil Clough. "The businesses that are growing fast and may have gone public in the '90s are still out there and need equity."

ABS invests $15 million to $40 million in later-stage companies with at least $20 million in revenue. Clough says the firm invests in "growth companies," which are too mature for venture capital funding but not ready for a private-equity buyout or other acquisition.

"What we get excited about are the good business models. If they have traction in the marketplace, it has to scale to reach profitability," he said.

Kim Hart writes about Washington's technology scene every Monday. Contact her at hartk@washpost.com.

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