TEDCO sets timeline to start investing in startups again

By Morgan Eichensehr
Baltimore Business Journal
October 31, 2019
Read the full article here

TEDCO is working to finalize new regulations and hire some new executives before the start of the year. COURTESY OF TEDCO

The Maryland Technology Development Corp. is aiming to be able to once again make venture investments in local tech startups by the start of 2020.

The state-backed funding agency stopped new investments while it enacted reforms mandated by the Maryland General Assembly.

TEDCO has completed a draft of new governing regulations, Stephen Auvil, TEDCO’s acting executive director, told legislators during a hearing this week regarding a state audit report that put a critical spotlight on some of the organization’s investment practices earlier this year. Auvil said pending any major adjustments called for during a public comment period, he hopes the regulations will be finalized and approved the end of December. That would enable TEDCO to begin investing again through its venture and seed funding arms by the new year.

A February state audit report revealed the Maryland Venture Fund, one of a handful of funds TEDCO manages, had invested in several tech companies that either left the state or employed a majority of employees working outside the state. The MVF is the largest fund under TEDCO’s control, and accounts for about 89% of the organization’s $114.7 million net position, according to auditors. Some legislators felt the audit demonstrated a violation of TEDCO’s mission to use taxpayer dollars to support startup growth and job creation in Maryland.

bill was subsequently passed in the General Assembly that increases regulations around how TEDCO makes investments in tech startups, and requires the organization to report quarterly on its investment activity to the governor and state regulators, among other stipulations.

TEDCO has been in the midst of an internal reorganization of its leadership, policies and practices since the close of the 2019 legislative session. In addition to working to meet new requirements set forth in the bill, the organization has also been focused on filling positions left open following a slew of executive resignations.

Former CEO George Davis resigned effective July 31 after two years at the TEDCO helm. His spot has temporarily been filled by Auvil, as TEDCO’s board seeks a permanent replacement. Other resignees have included Andy Jones and Parag Sheth, who helped lead the MVF, and John Wasilisinformer president and chief operating officer. TEDCO has said all resignations were unrelated to the fallout from the state audit report.

Auvil said TEDCO has conducted interviews with a handful of the more than 130 applicants that have applied for the open MVF managing director position. He said he hopes to fill the job by the first of the year as well, so the MVF can be ready to invest, armed with new leadership and a new set of rules.

TEDCO’s draft regulations, now publicly available for comment, include provisions defining what constitutes a “qualified business,” or the kind of tech company in which TEDCO could invest. Under the new definition, a startup that qualifies for TEDCO investment must be principally located in Maryland and maintain over half of its workforce in Maryland, or is determined to have substantial economic impact in Maryland through job creation, capital investment and contribution to the state’s technology ecosystem.

There are also new “clawback” provisions, which would allow TEDCO to reclaim funds it’s invested in a firm if it, for example, moves out of the state following an investment or no longer meets the “qualified business” criteria for some other reason. Auvil said an investment committee, part of TEDCO’s governing board, will be tasked with setting standards for how and when clawback provisions should be used. He said the committee will also be examining TEDCO’s entire existing portfolio, to determine whether all the funded firms meet the new qualifications, or whether clawbacks could be necessary.

Sen. Cheryl Kagan, the author of the state Senate’s TEDCO reform bill, commended TEDCO on the progress made since June. She said TEDCO’s remaining leadership has been “diligent, thoughtful and detail oriented” in making the adjustments necessary under the passed legislation.

Some legislators suggested during the recent audit hearing that further investigation or corrective action may be necessary concerning TEDCO’s questionable investment history. But Auvil said that is up to the Maryland Attorney General’s office to decide. For now, he is chiefly focused on getting TEDCO’s venture and seed investment funds back online.

Other funding programs managed by TEDCO, including the Maryland Innovation Initiative and Maryland Stem Cell Research Fund, have remained active throughout the restructuring. The organizations also continues to offer entrepreneurial support programs, like pitch feedback and access to industry advisors.

Auvil said the TEDCO team has also continued to take meetings with startups seeking venture funding. He said he wasn’t able to quantify what the impact of the now five-month investment pause has been, or how many deals TEDCO may otherwise have done in that period.

“We still have companies knocking on our door,” Auvil said. “We’re learning what their needs are, so when we do get approvals, we can be up and running quickly.”