Governor Martin O’Malley and Peter Greenleaf, chairman of the Maryland Venture Fund Authority (MVFA), announced that New Atlantic Ventures and Kinetic Ventures have been selected to receive funds through the State’s $84 million InvestMaryland program. New Atlantic will receive $8 million and Kinetic will receive $5 million to invest in innovative early-stage businesses in the State. As part of the agreement, the firms, if successful with investments, will return 100 percent of the principal and 80 percent of the profits to the State’s general fund.
Created by Governor O’Malley and passed by the Maryland General Assembly in 2011, InvestMaryland is an historic initiative to fuel Maryland’s Innovation Economy, support entrepreneurs and stimulate the economy and job creation.
“We are excited to bring New Atlantic and Kinetic on board as partners in InvestMaryland,” said Governor O’Malley. “This critical program leverages the capital and expertise of the private sector to ensure that our early-stage companies get the funding they need to further discoveries that feed, fuel and heal our world.”
The international collaboration between the major research institutions will investigate the potential medical applications of integrated optical sensors — small, highly sensitive devices that researchers say can recognize diseases.
Researchers hope the sensors will make testing cheaper and quicker. That, in turn, would make testing available to broader populations and treatments more targeted, which could cut down on the spread of drug-resistant strains of diseases.
But, while the technology holds promise, Fraunhofer and Hopkins need more.
Their work would linger on the lab bench without the timely injections of capital that move innovations from the drawing board to the marketplace.
“They said ‘What can you do to help?’” Johansson said, recounting the meeting.
“We were able to have a conversation and for the first time really be able to say ‘We have a pathway of capital to get you to a place where you can turn this into a company where you can raise more private capital, where you can actually have a product,’” Johansson said. “In the past, what we could do to help was, frankly, very limited. We certainly didn’t have readily available tools to help new technologies that weren’t ready for seed financing yet.”
As a first step, Johansson suggested applying for the Innovate Maryland program, an initiative of Gov. Martin O’Malley approved by the General Assembly this year.
A partnership between the state and public and private research universities, including Hopkins, Innovate Maryland is designed to commercialize 40 discoveries a year by providing funding for prototypes and other proof-of-concept work.
DBED’s Maryland Venture Fund will invest about one-third of the InvestMaryland money in seed-, early and growth-stage companies and private venture firms will invest the rest of the money on behalf of the state in early and growth-stage businesses.
A company could receive a Maryland Venture Fund investment, grow, prove successful and later catch the eye of a venture fund investing more of the state’s dollars.
The first investments will likely be made this summer.
“There’s a continuum of capital and opportunity that didn’t exist before,” Johansson said. “We’ve built a runway that can take a project from an innovation occurring in our universities through commercialization to company formation and job creation. That is something that didn’t exist before we got here. It’s practical. It’s happening. It’s not science fiction anymore.”
Chuck Cullen is a general partner at Grotech Ventures, as well as the firm’s chief financial officer. Founded in 1984, Grotech has focused its venture capital investments on early stage information technology companies, including major mid-Atlantic names like Advertising.com and LivingSocial. Cullen sat down with MDbizMedia recently for a Q&A on the landscape of Maryland venture capital.
Why did the firm decide to focus on early stage IT?
“Venture has always been a core strength for us. We really liked the market dynamics of the early stage landscape, so we played on our strengths and our history and our expertise. And we saw some weaknesses and challenges in those later-stage markets, specifically lots of capital flowing into those markets, prices that were being paid for investments that were oftentimes inflated and significant use of leverage in deals that were being closed at that time.”
So there was space in the early stage market? There’s a lack of supply that you saw, in terms of capital?
“There is. And there’s an opportunity for us to leverage our relationships, our networks to find the best deals, to support those deals through the growth phases and to continue on with the success that we’ve had over these 28 years.”
It’s often said there’s a gulf in the state between innovation and commercialization. Do you agree with that?
“It has been a challenge and it will continue to be a challenge going forward, particularly if the end goal is to produce public companies, or large, sustainable companies around these technologies. It takes the right resources – the money, the human capital, the technology, the markets and timing – to all come together to make that happen.”
Why is that going to remain a challenge?
“Well, capital is hard to come by. Early stage capital is hard to find. Markets are competitive and very dynamic. You need to have an ecosystem that supports these companies. There are certain areas of the country where there are very dynamic ecosystems for early stage companies. You know, Boston or Silicon Valley, where there’s a very strong network and ecosystem and a network of universities that produce technology and then are very effective at taking that technology, rolling it out and commercializing it.”
Why aren’t you in Silicon Valley or Boston? Why is the company here?
“This is a terrific area in terms of the history of technology companies that have grown out of this area. We have many examples of successful companies that were grown in this region. We have found fertile ground here.”
Is the ecosystem getting better here?
“There are some headwinds that I think our markets face. It is a challenge to find early stage capital that will support a wide range of opportunities. Some of this comes down to a law of large numbers as well, and putting those resources into a large number of ideas, seeing how the market reacts to those ideas, and taking those ideas to the next level. The state of Maryland has systems in place to help commercialize these technologies. We have a very vibrant incubator system. But until we can look back and we can say that we’ve produced “X” number of companies that have emerged and been successful, the jury is still out. State programs, like the InvestMaryland program, are very helpful. We need more programs like this.”
Can Maryland have that sort of ecosystem you were talking about?
“Absolutely. I would also say that more generally, in the mid-Atlantic. There’s a Maryland component, but there’s also Northern Virginia, and the District of Columbia has become very active.”
What impact do Maryland’s federal, medical and academic institutions have on the start-ups here?
“We have a great pool of talent to pull from. We have predecessor technology companies that have been successful. I look at company like Zenoss, based in Annapolis, led by an executive with previous experience from cloud computing pioneers, Digex and USinternetworking — both Maryland-based — and the executive talent flowing from Advertising.com as good examples. Having an ecosystem of previously successful entrepreneurs knowing what it takes to grow these companies is really critical. Leveraging this talent pool, as well as top-notch federal, medical and academic institutions and government programs to support the ecosystem has a compounding effect. One further example comes from Howard County, where there has been leadership to build the best public fiberoptic network with cutting-edge technology that can be used to test next-generation applications. This is the sort of leadership we need to make the most of the opportunity provided.
What else are you excited about in Maryland?
“I understand that several traditional incubators are adopting more of an “accelerator” approach. That’s important. One other thing I’ve seen here locally is that it appears that there’s a next generation of start-up, super angel groups that are out there. There are individuals who are working to aggregate angel investors and high-net-worth individuals who can come in, work closely with these fledgling companies, and provide capital to start-up entities. In addition, capitalizing on the government’s research spending, in areas like cyber security, will continue to help the ecosystem.”
From a whirring hard drive in Tom Murdock’s living room in Timonium grew Moodlerooms, Inc.
The spinning drive told Murdock, then a high school English teacher, his students were logging in online to turn in assignments, read Murdock’s feedback and communicate with their instructor.
That experiment with a platform called Moodle blossomed into Moodlerooms, a Baltimore tech company with 85 employees, 1,000 clients across the country and a million end users.
“Our growth is explosive,” said Murdock, the co-founder and president of Moodlerooms.
The company supports the e-learning software that schools, universities and businesses use, and adds its own innovations in assessment, content management, interactivity and other areas on top of the open-source Moodle platform. Moodlerooms developers have also been working on a new product the company plans to roll out soon.
“I think we’ve succeeded in creating a whole new category of product, something that nobody else offers,” Murdock said. “We’re really thrilled about introducing that in the next couple months.”
Lou Pugliese, the company’s chairman and CEO, said the product “completely reinvents” e-learning design.
“E-learning and learning management systems are really only about 12 years old, but it’s the fastest growing technology in the history of education, quite frankly,” Pugliese said. “It’s very different now than when we built it in the late ‘90s. Educators and schools are looking for new types of applications. They’re looking for different designs.”
Moodlerooms was founded in 2005 after Murdock found himself running e-learning programs for other teachers, too.
Pugliese said he expects the staff to grow to 150 by the end of next year.
Moodle is the largest e-learning platform in the world, with a presence in more than 200 countries and 55 million end users. Moodlerooms is the platform’s largest service provider.
“Most institutions, higher ed and K-12, are looking to get into the open-source environment,” said Pugliese. “They’re looking to move off of proprietary platforms.”
The growth also reflects broader changes in technology that have put smartphones in students’ pockets and electronic communication tools, like social networking sites, on their screens. E-learning software allows educators to tailor instruction more closely to students’ needs while delivering the information in the mode to which students have become accustomed.
“It’s very difficult to reach an individual student. Every student learns differently. In a textbook classroom environment, it’s one size fits all. You either make it and understand it or you don’t,” said Pugliese. “What e-learning and digital content allows you to do is to redirect specific remediation activities to a student that doesn’t have the same kind of skill and competency that somebody else might have.”
InvestMaryland raised $84 million on Thursday to invest in small, high-tech Maryland businesses. Afterward, Christian Johansson, secretary of the Department of Business and Economic Development, and Peter Greenleaf, president of MedImmune and chairman of the Maryland Venture Fund Authority, shared their thoughts on the highly successful auction and what’s next for the state-funded venture capital effort.
Maryland Venture Fund Authority members and staffers watch the results of a tax credit auction to fund the InvestMaryland venture capital program.
One-third of the money raised, or $28 million, will go to the state’s Maryland Venture Fund and two-thirds, $56 million, will be allocated to private venture capital firms to be invested in high-tech Maryland companies.
On successful investments by private venture firms, Maryland will recoup all of the principal and 80 percent of the profits.
The expected benefits, however, go beyond those returns.
“The last time we [seeded the Maryland Venture Fund], we only invested $25 million,” Johansson said. “That $25 million returned $61 million to taxpayers. On top of that, it created 2,000 jobs.”
Peter Greenleaf, president of Gaithersburg-based MedImmune and chairman of the Maryland Venture Fund Authority, which oversees InvestMaryland, said the “infusion of capital is going to make a real difference for companies in the state of Maryland.”
“The hunger and need for capital out there, all the way from seed level, all the way through the later-stage development companies is very, very high,” Greenleaf said. “The current economic environment, the economic environment over the last five years, has been toughest in some cases on some of our smaller, entrepreneurial companies.”
InvestMaryland, Gov. Martin O’Malley’s top economic proposal in 2011, was approved by the General Assembly last April. The legislation authorized the venture authority to auction off $100 million in tax credits to insurance companies and to use the proceeds to fuel the venture capital program.
Unsure of the appetite insurance companies would have for the credits, members of the venture fund authority only had to wait four minutes on Thursday.
The auction launched at 11 a.m. and by 11:04, insurance companies had bid on all $100 million in credits, most of them at the price floor of 70 cents on the dollar.
Then the price started to climb.
By 11:25, the price was 80 cents on the dollar and crept higher, even as bidding slowed.
The auction was extended by more than 12 minutes as insurance companies sought to clear the threshold and claim some of the credits.
In the end, 24 bidders made 47 bids. The final price: 84 cents on the dollar. The haul: $84 million for InvestMaryland.
Maryland was the first state to fill a venture capital fund by auctioning tax credits, Johansson said.
“If we would have gone with other approaches, we would have raised $14 million less, at a minimum,” he said.
DBED will solicit proposals from venture capital firms interested in participating in the program starting March 20.
The authority will recommend venture firms to the department in May. The allocations of investment capital to venture firms and the first investments will be made in June.
By Samantha Lozano, Marketing and Communications, Department of Business and Economic Development
Following a career that took her to Williams-Sonoma, The Gap, Sports Authority and Staples, e-commerce executive Susan Aplin struck out on her own after finding inspiration on an Alaskan glacier in July 2005.
“To think about a glacier receding a mile a year, that was just staggering to me,” she said.
Aplin made the “easy changes” to shrink her carbon footprint after she returned home from vacation.
But she knew it wasn’t enough.
Susan Aplin, CEO of Bambeco, holds up a bulb on a strand of the company’s solar-powered Aurura Glow String Lights.
So, she and Carolyn Wapnick launched Bambeco on April 22, 2009 — Earth Day. The online retailer sells green home furnishings and décor, ranging from solar-powered tea lanterns, to recycled scrap steel trash bins and bicycle chain bottle openers.
“I wanted to extend those values across the home,” Aplin said. “I found through extensive research across Europe and America that there weren’t any sexy and hot products for the home that were good and affordable. They just didn’t exist.”
The company, founded in West Virginia, moved to Baltimore in 2010. The following year, the Department of Business and Economic Development invested $100,000 in Bambeco through the Maryland Venture Fund.
Aplin had considered California, Pennsylvania, Northern Virginia and Washington, D.C. She was attracted to this region’s efforts to improve public transportation, incentives for eco-friendly businesses and proximity to the Port of Baltimore.
Now in its third year, Bambeco has seen more than 1,000 percent year-over-year growth, according to Aplin. The company has 16 employees and Aplin anticipates hiring 10 or 11 more this year.
Bambeco sells merchandise made with sustainable practices and of eco-friendly materials. Each vendor goes through a 20-page evaluation that dissects products’ origin, production and certification.
Its products include briefcases made from recycled truck tires with seatbelt shoulder straps, mollusk shell plates from the Philippines and cups carved from naturally-shed bison horns. The company also sells hemp dog collars, organic cotton dog beds and other pet supplies.
Bambeco’s products have been featured by USA Today, Every Day with Rachael Ray, People Magazine, The Today Show and Emmy-winning sitcom Modern Family.
Aplin said the company plans to add more furniture to Bambeco’s product offerings and is preparing to launch bambecokids.com.
“We are going to leverage the brand and extend it across this market,” she said.
Aplin said Bambeco plans to put its products in brick-and-mortar retailers this year and early next year, and left open the possibility that the Bambeco would one day open its own stores.
The company will soon outgrow its 5,900-square-foot space in what once was a warehouse for a convenience store chain in Curtis Bay. Aplin is looking for up to 20,000 square feet of office and warehouse space in the city and Baltimore and Prince George’s counties.
Most of what Bambeco sells does not carry the company’s name, but Aplin said the company plans to shift that balance, and would like sell more products made in Maryland.
“About 40 percent of our products are exclusive to the company,” she said. “By the end of this year, our goal is to have 90 percent under the Bambeco brand.”
While the eco-friendly approach sets Bambeco apart now, Aplin expects others will catch up.
“In 10 years … every product will be sustainable. And we’ll be duking it out over price, quality and style.”
Past the Indian grocery store in a quiet Columbia business park, beyond the laser tag place and wedding gown boutique, A&G Pharmaceutical Inc. has been quietly fighting cancer.
Now, however, 12-year-old A&G is starting to make some noise. The company launched a partnership with the Mayo Clinic on Tuesday and a deal being negotiated with a major commercial partner to take A&G’s products worldwide will only turn up the volume.
A&G CEO Ginette Serrero, a native of Nice in the French Riviera, compares the process to a watching a good wine mature and age until its ready to be enjoyed.
“We are in negotiations to commercialize our diagnostic product, so it’s really part, first part of the dream come true,” said Serrero.
A&G was founded in June 2000 and moved to Columbia in 2003. In 2005 and 2006, the Department of Business and Economic Development invested $657,000 in the company through the Maryland Venture Fund. With 20 employees, A&G is using every last inch of its 8,000 square feet.
Serrero came to the United States first to study and again for the greater opportunities afforded to women in science here than in France. She was a professor at the University of Maryland School of Pharmacy and the Greenebaum Cancer Center when she co-founded A&G.
Her work centers on GP88. Serrero discovered the protein is produced at abnormally high levels by breast cancer cells because it helps them grow and spread.
“There are two things that are very important – detecting the cancer and being able to kill it,” said Serrero. “If you have a target that is common to that, that is overexpressed by the cancer cell … at the same time they make it because they want to survive, then this is a perfect target.”
A&G has filed 150 patents from its GP88 discovery and developed three products. Two are diagnostic tools — one that can test cancer cells to determine the likelihood the disease will recur and a blood test to monitor a patient’s response to treatment and how the disease is progressing.
It is those tools the company would offer worldwide through the partnership being negotiated.
The third product is a therapy to kill the cancer by choking off its GP88 supply, but it is not as far along in the pipeline, Serrero said.
The GP88 work has spread beyond cancer.
Mayo Clinic researchers found that patients with frontotemporal dementia — FTD accounts for between 5 and 10 percent of all dementia cases — have abnormally low levels of GP88 in their blood.
Using A&G’s technology, the clinic developed the first commercial blood test to identify the protein deficiency in patients suspected of having FTD. The test will be available late this year to patients at the clinic in Minnesota and worldwide through Mayo Medical Laboratories.
If Serrero’s GP88 products are A&G’s wine, co-founder Jun Hayashi’s side of the company is the bread and butter. The arrangement has ensured A&G has a steady source of revenue while Serrero’s work progresses.
The Precision Antibody division of A&G develops custom antibodies for drug companies working on new products and federal agencies confronting new diseases.
Hayashi, also a former UMD pharmacy professor, said A&G can finish development of an antibody in 30 to 40 days, whereas most companies take two to three months.
“We provide the tools to researchers and pharmaceutical companies, the tools to dig for gold,” Hayashi said.
At first there were wristwatches, toy soldiers and a chair from a Baltimore hotel in which Babe Ruth used to sit.
Now the Optoro Inc. warehouse in Lanham is packed with flat-screen televisions, speaker systems, video game consoles, smart phones and a host of other gadgets that would give any electronics store a run for its money.
Nearing its eighth birthday, Optoro is edging toward another expansion of its physical footprint and more growth in a market its CEO says is worth $100 billion a year.
That market is customer returns – the 10 to 15 percent of consumer electronics that get sent back to WalMart, Best Buy, Staples and other retailers.
Optoro exists between those sellers and secondary customers. The company buys batches of returned goods, tests them, catalogs them and pushes them out for sale through Amazon, eBay and other websites, including Optoro’s own blinq.com.
Proprietary algorithms comb online marketplaces to set initial pricetags, and will raise them if the products sell too fast or lower them to clear the goods off the shelves more quickly.
The company has rolled out software that allows retailers to do the same thing, an innovation that could lead to more explosive growth.
“If we put our software in place in some of these [return] facilities, we can go from being a $20 million company to a $500 million company in several years,” said Tobin Moore, Optoro’s 29-year-old president and CEO.
The idea for Optoro came in 2004 when Moore was home in Washington, D.C., on winter break from Brown University. His father was an avid collector of toy soldiers, 1940s vintage toy trucks and other collectibles.
“He had these collections really grow, but he couldn’t sell them himself,” said Moore. “He could buy nonstop, but he couldn’t sell online.”
Moore and Justin Lesher started the company above Moore’s parents’ garage in July 2004. They envisioned a chain of storefronts where people could drop off things the company would sell on eBay, but the plan changed as the company grew.
“We realized it was much more efficient to sell for businesses,” Moore said.
That meant dealing with fewer suppliers with much greater volume.
“Of that stuff, the majority of it is functional and in like-new condition,” Moore said. “It’s usually just because they (the customer) bought the wrong thing, they bought an Android, tried it out for 10 days and decided they want to stick with their iPhone.”
Optoro moved to its Lanham headquarters after looking in Washington and its suburbs on both sides of the Potomac.
The company is still fundraising. In 2010 and 2011, the Department of Business and Economic Development invested $200,000 in Optoro through the Maryland Venture Fund.
Optoro ships between 15,000 and 20,000 packages from its warehouse every month. Moore said he expects that to double by December, with even more growth coming from products re-sold through the company’s software at retailers’ return facilities.
Strolling through the company’s lounge, between the retro bar stools, video game consoles and bobblehead dolls of the employees of the month, Moore said he hopes to expand the offices this summer.
Now at 56 employees, Optoro brings on five new potential bobblehead winners every month.
by Karen Glenn Hood, DBED Marketing and Communications
Like many small business owners, Susan Aplin wanted to expand her business.
As the CEO of Bambeco, an eco-friendly home and housewares company based in Baltimore, Aplin saw opportunity in the ever-growing market for sustainable goods. She wanted to add employees, she wanted to increase her inventory and she wanted a bigger space.
So, last year, Aplin turned to the Maryland Venture Fund, a financing program of the Maryland Department of Business and Economic Development (DBED), which has approved a $100,000 investment in the retailer, enabling the company to move forward on its goals for growth.
Bambeco is among the business success stories being highlighted in a series of ads that DBED began running this week on local radio and on WashingtonPost.com to connect Maryland small businesses that may not qualify for traditional bank financing with State resources. The 10-week Financing that Fits campaign promotes four of the State’s key financing programs that received the first round of $23 million of funding from the federal State Small Business Credit Initiative (SSBCI), part of the Small Business Jobs Act of 2010.
“The Financing that Fits campaign is part of a larger, ongoing effort by the State to address the needs of the many small businesses that are continuing to struggle to access credit,” said DBED Secretary Christian S. Johansson. “These four finance programs received additional federal funds targeted to help small businesses and we want to ensure that the businesses that need such assistance are aware that these programs exist and learn how they can benefit from them.”
In addition to Bambeco, the ads feature stories about Environmental Engineering and Construction and John L. Williams Funeral Home, as well as lender Harbor Bank, which has worked with DBED on several loan guarantee deals. The ads drive listeners and readers to the State’s economic development website ChooseMaryland.org, which has more information on the programs and provides a form that businesses can fill out which will be evaluated for potential financing by DBED staff.
The DBED programs promoted in the ads are the Maryland Small Business Development Financing Authority (MSBDFA), which provides credit guarantees to small businesses that may not meet established credit criteria; the Maryland Industrial Development Financing Authority (MIDFA), which provides loan guarantees; and the Maryland Venture Fund (MVF), which invests in seed and early stage businesses to help with the cost of bringing a new product to market. Also included in the promotion is a program of the Maryland Department of Housing and Community Development, Neighborhood Business Works, which provides gap financing to new or expanding small business and nonprofits in sustainable communities. In May 2010, Governor Martin O’Malley and U.S. Treasurer Rosie Rios announced as part of a national effort to strengthen existing State finance programs that support lending to small business that Maryland would receive a total of $23 million for these programs, $7 million of which became available in June. Once those funds are expended, the programs can jointly draw down the remaining $16 million.
Auction will raise a minimum of $70M to invest in State’s start-up and early stage companies.
by Wanda Persons Wickham, DBED Marketing & Communications
Gearing up for the implementation in 2012 of the State’s InvestMaryland initiative, Grant Street Group, tax auction consultants, has been selected to oversee and administer the auction of the State’s premium tax credits to insurance companies operating in Maryland with the goal of raising a minimum of $70 million.
The funds will be invested into promising start-up and early stage companies in Maryland, creating the largest venture capital investment in the State’s history with the potential to generate 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, all with no immediate cost to taxpayers. The tax credit auction will take place in March 2012 with a floor of $.70 on the dollar and a maximum of $100 million in tax credits as authorized by law.
“We are looking forward to working with a highly regarded firm like Grant Street Group to move InvestMaryland forward,” said DBED Secretary Christian S. Johansson. “A successful tax credit auction with the goal of raising a minimum of $70 million and hopefully more will help fuel the jobs and companies of tomorrow and create an economic climate where the most promising ideas and innovations have a chance to mature.”
Grant Street Group, www.grantstreet.com develops, hosts and administers customized software applications used by governments and financial institutions to support revenue collection and auctions of fixed income instruments, tax deeds and real estate. The company has over 3,100 government and financial clients and has been supplying hosted software as a service since 1997. Grant Street Group will work closely with the Maryland Venture Fund Authority, which was named earlier this year to oversee the administration of InvestMaryland.
Members of the Maryland Venture Fund Authority sworn in by Governor O'Malley on August 31,2011
The Maryland Venture Fund Authority will select venture capital firms that will invest 67 percent of the funds raised. Of the funds invested through private VC firms, 100 percent of the principal and 80 percent of the profits will be returned to the State’s general fund. The remaining funds – 33 percent – will be deposited into the State’s 15-year-old Maryland Venture Fund (MVF). Over its life, the MVF has invested $25 million into hundreds of start-up and early stage technology and life sciences companies, generating a $61 million return. The Maryland Small Business Development Financing Authority (MSBDFA) will also receive a portion of funds for investment.
Following the tax credit auction, the private venture capital firms will be able to begin making investments by mid-2012. Insurance companies will be able to claim tax credits beginning in 2015.