Maryland venture capital funding shrinks

Firms in Maryland’s two largest metro markets pulled in less venture capital funding in 2014 than the previous year, but some commercial real estate professionals remain optimistic about startups’ impact on local office markets.

The Washington, D.C., metro market, which includes figures from Northern Virginia, saw funding drop by 30.5 percent, while funding for firms in the Baltimore region fell by 14.8 percent, according to a reports from commercial real estate services firm Jones Lang LaSalle.

Despite the drop in annual venture capital investment in Baltimore, which totaled $63.5 million in 2014, there is reason to be optimistic about that market, largely based on the fact that the investments that were made went to a wider range of companies, with 26 firms receiving investments compared to 15 the year before.

“What sticks out is, obviously, that it’s spread out across a number of different companies, which I think is a direct correlation with the uptick in activity we’re seeing in the [Baltimore] market from … technology and technology-related companies,” said Brad Crosley, a senior vice president at Jones Lang LaSalle in Baltimore.

Baltimore’s drop in investment also comes in large part because the 2013 numbers were inflated by a large round of funding for Videology, a video advertising technology platform started by advertising.com co-founder Scott Ferber. That startup alone attracted $60 million in venture capital funding in the third quarter of 2013.

The challenge now for commercial real estate firms will be finding the office space in Baltimore that appeals to these companies, which generally attract a younger workforce.

“For smaller tenants I would say that, generally speaking, there’s plenty of space in the Baltimore region for them to grow their business. With that said, however, these tenants are typically looking for something that’s a little unique [compared] to the plain vanilla general office building,” Crosley said. “The challenge becomes for these groups in identifying what they consider a unique space, something they can feel like will attract the employees they want to attract, and be able to retain the employee they want to retain.”

Among the notable recipients of venture capital in the Baltimore region were Straighterline Inc., an online educational business, which received $4.2 million in the fourth quarter; advance materials company Pixelligent Inc., $5.5 million in the fourth quarter; and OpiaTalk, a digital sales tool company, $500,000 in the fourth quarter.

Meanwhile suburban Maryland, which includes Bethesda, Rockville and Gaithersburg, pulled in a total of $186.1 million. But that’s the lowest portion of investment in that market, with Washington, D.C., firms receiving $236.7 million and Northern Virginia companies pulling in $423.4 million. Virginia’s Dulles Toll Road corridor did particularly well, showing an 87.9 percent increase in venture capital funding and receiving about 30 percent of total investment.

Andrew O’Brien, a senior vice president with Jones Lang LaSalle in D.C., also said there was a silver lining in the market despite the slump in venture capital funding — the investment in software companies.

For so long, he said, the office market has been dominated by government leases, so it’s a positive to see more private companies being funded. Although he expects downtown D.C. to benefit the most from these technology firms, because younger employees want to be in the city, he said suburban Maryland can still compete for these firms if they market themselves well.

“Really play up the incentives Maryland already has in place, which are very good, but really just kind of change the overall message to try and capture this Millennial workforce that right now would rather be in the city,” O’Brien said.