Donald Fry: ‘Invest Maryland’ outcome will gauge depth of state commitment to early-stage funding

By Donald C. Fry

Last Tuesday, the House Ways and Means Committee sent a pared-down and amended Invest Maryland bill, HB 173/SB 180 to the House floor. As of Thursday afternoon, the House had preliminarily approved the amended version of the bill, keeping one of the top legislative priorities of the O’Malley administration alive entering the final weekend of this year’s regular session.

Final House passage is expected on Friday, after which the legislation, supported by a cadre of business advocates, will go to the Senate Budget and Taxation Committee, where it faces more potential amendments.

Governor O’Malley’s Invest Maryland proposal would sell discounted tax credits to insurance companies and use the proceeds to invest in emerging bioscience and technology companies located in Maryland. A major purpose of the bill is to generate a significant pool of funding from the private sector to invest in companies that are in the early stages of building businesses stemming from research performed at universities and research labs in our state.

The House Ways and Means Committee’s amendments would cut back the amount of tax credits the state could sell, which would reduce the amount of privately-funded investment capital ultimately raised to approximately $75 million – $25 million less than in the original legislation.

Other amendments would reduce to one-third the amount of funds the legislation would make available for investment in early-stage companies through the Department of Business and Economic Development. Two thirds would be invested in emerging companies through private venture capital firms, which tend to favor companies that are largely beyond the early stage of development. The original bill would have focused at least 50 percent of investment funding on early-stage companies.

Compared to other states that are aggressively nurturing growth of their bioscience and technology industry sectors, Maryland lags behind in available early-stage financing, industry experts told lawmakers during February hearings on the Invest Maryland bills.

That’s a significant economic development shortcoming for a state so abundant in research and innovative ideas percolating from within the plethora of major research institutions located here.

A new generation of entrepreneurs is emerging here. But experts report that our state is significantly short of capital to get emerging companies through the “valley of death,” the in-between stage at which entrepreneurs have exhausted most initial start-up investments from friends and angel investors, but need funds to get their new companies to a more developed stage that will attract more investment.

It’s considered likely that lawmakers will pass some kind of Invest Maryland legislation – probably on Monday, the last day of the session. But what form the legislation will take after a weekend of compromise and bargaining by members of House and Senate fiscal committees is anybody’s guess.

Members of the Senate Budget and Taxation Committee may seek to tinker with the way the investment capital for the fund would be raised. During February hearings on the bill, several committee members questioned the concept of selling tax credits at a discount.

They questioned why the state shouldn’t just directly earmark funds to invest into emerging companies. If lawmakers decide to pursue such an option, it would mark a significant change in the state’s biotech and technology funding strategy, which currently relies largely on leveraging tax credits into generating private-sector investment in emerging technology companies.

For lawmakers seeking to arrive at a consensus on Invest Maryland over the weekend, the bottom-line issue is whether, and to what degree, the state will commit to investing in early-stage companies. It’s a high-risk proposition, but early-stage funding is critical to converting Maryland’s wealth of research into bioscience and technology industry growth.

In any case, we’ll know the answer on Tuesday.

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