Last week, the State of Maryland became the first state in the USA to use an online auction to raise funds for a venture capital program. The auction yielded $84 million, a whopping 20% more than the original forecasted goal of $70 million. On September 24, 2011, I wrote a brief summary of the InvestMaryland program.
InvestMaryland will invest in the State’s promising start-up and early stage companies, as early as this summer. The $84 million raised was generated through an online auction of premium tax credits to 11 insurance companies (including Hartford Insurance, New York Life, Chubb, GEICO, and Met Life) with operations in Maryland. The inaugural round of investments will be made in innovative companies this summer through several private venture capital firms and the State’s successful Maryland Venture Fund (MVF),
Said Governor Martin O’Malley, “Our State is well-positioned to be a leader in the new economy as a global hub of innovation – a leader in science, security, health, discovery and information technology. That’s why last year, together with business leaders from across the State and the General Assembly, we chose to invest in our diverse and highly-educated workforce and the skills and talents of our people for the jobs and opportunity of tomorrow.”
The InvestMaryland program is being implemented through the Maryland Venture Fund Authority, on which I am very proud to serve, as well as the Maryland Department of Business and Economic Development (DBED).
Earlier this year, the Authority selected Grant Street Group to prepare for and run the tax credit auction and also recently selected Altius Associates, a London-based firm, to oversee the selection of three to four private venture firms to invest the InvestMaryland funds. The private venture firms will be responsible for investing two-thirds of the funds, which will return 100 percent of the principal and 80 percent of the profits to the State’s general fund. The remaining 33 percent will be invested by 17-year-old Maryland Venture Fund (MVF). The Maryland Small Business Development Financing Authority (MSBDFA) will also receive a portion of funds for investment. Returns on the funds invested through the MVF will be reinvested in the program.
InvestMaryland has the potential to create thousands of jobs in Innovation Economy sectors – life sciences and biotechnology, cyber security/IT and clean/green tech and attract billions of follow on capital.
Maryland has an outstanding infrastructure to support an Innovation Economy. The Milken Institute ranks Maryland #2 in the nation for technology and science assets. According to study results, while Maryland received high rankings in human capital investment, research and development inputs, technology and science workforce, and technology concentration and dynamism, it lagged behind other states in risk capital and entrepreneurial infrastructure, demonstrating the need for InvestMaryland and other programs.
How will Altius select the Venture Capital firms? Altius will be evaluating venture capital funds based on management experience, firm experience, investment performance and criteria defined in the legislation.
When will the firms be selected? Venture capital firms will be selected starting June/July 2012 for a projected18-month period and make first round of investments in summer 2012.
What is the investment return to the State? The selected venture firms will return 100 percent of the principal investment by the State before taking any distribution of profits and will then pay 80 percent of the profits to the State. Any returns on investments made through the Maryland Venture Fund go back into the fund for an evergreen program.
What is the projected average investment with venture capital companies? Investment will likely range from as low as $250,000 upwards to $10M.
Is there investment funding available from MVF? Maryland Venture Fund will continue to invest in early stage companies (tech, biotech, clean energy) from $50,000 to $500,000 as initial investments.
Maryland Venture Fund Authority (MVFA) will perform a monitoring role to ensure that investments and reporting meet the legislative guidelines.
In summary, as a member of the MVFA, and as a resident and business owner in Maryland, I am very excited to see this InvestMaryland program being implemented:
- This program brings great benefit for taxpayers. It helps create the jobs and companies of tomorrow and builds an economic climate where the most promising ideas and innovations have a chance to mature.
- This is a win-win for all constituencies within the State of Maryland. Through this initiative, we can:
- Infuse much needed capital into our seed and early stage companies
- Recapitalize the State’s successful Maryland Venture Fund
- Ensure no up-front cost to taxpayers
- Provide a tax benefit to insurance companies who bid today, who can begin claiming credits in 2015.
Thanks for reading. I’d appreciate any Comments or feedback you may have on InvestMaryland.
Featured image courtesy of Anosmia via Creative Commons.