DBED wants more flexibility with InvestMaryland program

ANNAPOLIS — The state’s economic development agency is asking the General Assembly to act quickly on changes to its signature venture capital program in order to secure the services of private investment firms.

The Department of Business and Economic Development has requested emergency legislation that would make some tweaks to the $84 million InvestMaryland program, of which $56 million is available for investment via private equity firms. Those firms are supposed to pump that money into Maryland start-ups.

Thomas S. Dann, managing director of the Maryland Venture Fund, said changes must be made to accommodate firms that are concerned about the state’s requirement that they invest money in companies operating in Maryland.

Those firms are wary of taking program money because it could force them to “bend their business plan,” Dann said. To solve that problem, some firms have proposed creating a “sidecar fund” in which the state would invest its money.

In order to do that, however, a cap on the state’s potential ownership stake in such a fund must be raised. Current law says the department cannot hold greater than a 25 percent interest in an entity, a measure meant to prevent government from taking a controlling share of a private fund.

“We need to have the authority to invest in a sidecar fund,” said Dann, who added that it’s possible the state could hold a 100 percent interest in such a fund. “We’ve got real-time negotiations going. I’m already telling funds we’re investing in, ‘Don’t worry about the legislation.’”

SB 70 includes other changes to the statute that DBED is describing as technical. Tagging it as an emergency bill allows it to go into effect as soon as it is approved by the legislature and Gov. Martin O’Malley. The bill is scheduled for a hearing in the Senate Budget and Taxation Committee on Jan. 30.

Committee Chairman Edward J. Kasemeyer, D-Baltimore County and Howard, was not immediately available to comment on the bill. Other lawmakers and State House aides said they had not yet seen the legislation.

Dann said lawmakers who have been told about the bill have been supportive. If the legislation doesn’t pass, it would spell trouble for the program.

He expects to announce deals with two firms next week, even though the bill hasn’t been acted on.

“We’re operating on kind of good faith, them saying, ‘We trust you guys to fix this,’” Dann said. “If it didn’t get passed, that would create a lot of risk for the firms we’re talking about … and it would fuel the concerns of some.

“It would hurt the program, for sure.”

Grotech Ventures, which has offices in Hunt Valley and Vienna, Va., in December became the first firm to receive state money through the program. Others have not been announced while program tweaks have been negotiated.

InvestMaryland’s $84 million was raised through an online auction of insurance premium tax credits in March. Ten companies with operations in Maryland bid on the credits, which will become available in 2015.

Private firms are supposed to invest $56 million of the total, with the state investing the remainder. DBED estimates that investments will be made in 40 to 80 companies a year. State investments will be made in start-up firms where there is more risk, while the private venture capitalists will target more mature, early and growth-stage companies.

While SB 70 is the first administration-requested bill to be introduced to the legislature this year, O’Malley is expected to unveil the rest of his agenda this week, including his operating budget proposal for the fiscal year that starts in July.

O’Malley is required to introduce a budget bill to the legislature by Wednesday. Unlike last year, tax increases won’t be necessary to raise the money needed to balance spending on programs and services.

The rest of O’Malley’s agenda — expected to include a wind energy bill, death penalty repeal and perhaps a ban on assault weapons and other gun-control legislation — could be unveiled late this week.

O’Malley has already unveiled some of his capital budget proposals. He announced last week that he’s proposing $336 million for school construction and upgrades and $25 million for affordable housing projects.

It’s unclear, however, how soon a bill that would raise money for mass transit projects can be introduced. O’Malley has floated a plan to increase the sales tax by a penny and another that would raise the gasoline tax. His plans have been made more complicated by a Virginia plan to abolish its gas tax and raise the sales tax, an idea offered this week by Virginia Gov. Bob McDonnell, a Republican.

“Gov. McDonnell … seems to be swapping the one for the other and making incremental progress,” O’Malley said last week.