Maryland eyes greater ownership in program’s venture capital firms -- Gazette.Net


State officials are seeking some changes in the $84 million InvestMaryland program, including allowing the Department of Business and Economic Development to acquire a greater ownership interest when investing in a venture firm.

Current law prohibits DBED from acquiring an ownership interest of more than 25 percent in a business in which it invests. Legislation filed by Sen. Edward J. Kasemeyer (D-Dist. 12) of Columbia on behalf of DBED would allow the state to acquire a larger interest if the investment is in a venture or private equity firm.

The legislation is an emergency bill that would take effect on the date it’s signed into law. The Senate Budget and Taxation Committee agreed Wednesday to assign the legislation to a special work group that is reviewing other bills.

The InvestMaryland program, administered by DBED and overseen by the nine-member Maryland Venture Fund Authority, started directly investing in companies last year and has given more than $2 million to seven businesses to date. The program also has funneled $25 million to three venture capital firms, which in turn are expected to invest in local businesses.

State officials are speaking with other such venture firms and have run into some technical concerns, acting DBED Secretary Dominick Murray said in a hearing this week before the Senate Budget and Taxation Committee, which Kasemeyer chairs.

DBED officials also want to establish a special reserve fund to cover potential indemnification obligations with venture firms. This is not currently possible because the program requires distributions to be immediately deposited into the state General Fund, said Thomas Dann, managing director of equity funds for DBED’s Maryland Venture Fund.

DBED has to set up escrow accounts with venture funds, which hold the distributions until a potential obligation is released, he said.

“That’s not satisfactory to us, because we want to actually control that money,” Dann said.

The bill also would change some required reporting about the program that DBED must make to political leaders and on its website. Rather than having to name individuals who invest under the program, under the legislation the report would have to list only people who make decisions on behalf of the venture firms making the investments.

The changes will result in no additional costs to the state, Dann said.

Murray, who is taking over for Christian S. Johansson, is expected to have a confirmation hearing before the Senate next week and could be sworn in as DBED secretary as early as Feb. 21, said agency spokeswoman Karen Glenn Hood.