Maryland business leaders applaud legislation to steer state funding to young firms

By Steven Overly
Monday, February 21, 2011

Representatives from Maryland's technology and venture capital communities congregated in Annapolis last week for the General Assembly's first hearings on legislation that would pump $100 million into a state fund that provides early-stage capital to promising state businesses.

The program, called Invest Maryland, calls for the state to auction off $142 million worth of tax credits to insurance companies at a reduced rate in order to generate $100 million for the Maryland Venture Fund. That money will then be invested by the state and select venture capital firms in Maryland-based companies.

For business leaders, the appeal is obvious: The state's money provides another source of capital for companies struggling to traverse "the valley of death," the funding gap between seed money and late-stage venture capital. Those sources have dried up along with the economy, many said.

"What Invest Maryland does in my opinion is fill that void in the short term until natural economic cycles come back and we have a growth cycle on a more macro scale so young, new venture [firms] can come in, start to cut their teeth [and] run those smaller funds," Robert Rosenbaum, president of Maryland Technology Economic Development, told the Senate Budget and Taxation Committee on Feb. 16.

While no one testified against the bill's passage, a few were on hand with suggestions to strike or alter provisions that they said would bog down the fund's efficiency or limit the level of private sector involvement.

Lisa Fadden, a lobbyist for the Montgomery County Chamber of Commerce, asked legislators to remove from the bill requirements for venture capital firms, such as provisions that they have an office in Maryland and seek written approval from the Department of Business and Economic Development prior to investing in companies.

"The more requirements you have, the fewer people qualify, and therefore the fewer people apply," Fadden said in an interview. "If you cement those requirements in statute, that means it would take a future legislative action to change those requirements."

The heads of two Rockville-based biotech companies, Jonathan Cohen of 20/20 GeneSystems and Darryl Sampey of BioFactura, had a more extensive proposition for legislators. On behalf of a half-dozen biotechs dubbed the "Maryland Biotechnology Coalition," they suggested the state's money be allotted to companies, venture capitalists and other investment vehicles that put forth matching funds.

"By having corporations, successful companies and private companies as well as smaller funds, I think the capital could be deployed faster and you could turn $100 million into $300 million," Cohen said. Their suggestion would eliminate the state's role as a direct investor in companies, which is how the bill states half of the capital will be used.

For taxpayers, the Invest Maryland program is more of a gamble. Biotechnology companies, one of the state's strongholds, often require gobs of money and years of research before turning a profit, if they do so at all. Other high-tech sectors, such as cybersecurity or health care IT, can also be slow to grow. Still, proponents are bullish.

"The end goal: We want tons of Marteks. We want tons more MedImmunes. We want the next Google," said DBED Secretary Christian Johansson. His office helped craft the program and organized a two-hour event on Wednesday to drum up support.

Steve Dubin, the chief executive of one of those success stories, Columbia-based nutritional supplements maker Martek Biosciences, voiced support for the program. Dubin said he first sought venture capital in 1985, a time when investors put money in early and expected returns to be years away. That's not the case today, he said.

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