USM investment fund has tapped mostly Baltimore, College Park startups

The Maryland Momentum Fund has been successful in its first couple of years but needs to do a better job of marketing itself to all of the University System of Maryland’s institutions, the fund’s director told the system’s Board of Regents Thursday.

The fund, which the system uses to invest in startups related to system institutions, has invested in eight companies so far, leveraging its investments with about four times that amount in outside money.

But the fund’s investments have mostly been in companies related to the University of Maryland, College Park, or the University of Maryland, Baltimore.

“I would love to see companies come from all 12 of our institutions, and I want to make sure they are all very familiar with what’s going on and what services we can provide,” Claire Broido Johnson, the fund’s managing director, told the members of the board’s Economic Development and Technology Commercialization Committee.

It was Broido Johnson’s first time addressing the committee since taking over leadership of the Maryland Momentum Fund in July.

The fund was developed to help companies founded by system students, alumni and faculty, or companies founded using system research, find and develop funding so they can stay in Maryland.

The system put $10 million into the fund and secured $15 million in outside money for the fund.

The fund cannot be the lead investor on any investment. Instead it can help encourage other investors to join.

Originally the fund expected to get about a 1:1 match on its investments from other investors, but to date that has been closer to 4:1. The momentum fund has disbursed $2.5 million in investments, matched by $11.2 million in other investors.

That was demonstrated in the fund’s most recent investment in Veralox Therapeutics. The fund was interested in the firm early on but had to wait for other investors.

Eventually, the company got an even bigger funding round than it expected when it received a lead investment from Sanofi Ventures for a round totaling $5.4 million.

Matt Boxer, Veralox’s chief operating officer, told the regents Thursday that it was the momentum fund’s early interest that helped catalyze the investment round.

But, like most of the other companies the momentum fund has invested in, Veralox’s system connection is one of the system’s three large research institutions, in this case the University of Maryland, Baltimore.

Of the funds eight investments so far, six have had a connection to the University of Maryland, College Park, and two have had a connection to the Baltimore campus. One of the College Park-connected companies also had a connection to the University of Maryland, Baltimore County.

Regents pressed Johnson to find ways to spread the fund’s investments around the system.

“The intent, we need to be very clear in demonstrating that we have jumped through virtually every hoop in order to reach every segment of the state,” said Ike Leggett, the committee’s chair. “The realization will come that at some point if we get before the General Assembly, we have got members that are scattered throughout the entire state.”

To some extent, the direction of funding toward companies from the research institutions can be attributed to a backlog of companies ready for this type of investment already in place, some staff told the committee.

Potential companies outside of that backlog could use pre-seed and angel investments that come before the kinds of rounds the Maryland Momentum Fund invests in.

Companies have to be advanced to receive the fund’s investment. During the 2019 fiscal year, the fund reviewed 137 companies and recommended just six for investment.