Maryland's economic development department has agreed to
invest $500,000 in a venture capital partnership co-run by John C. Weiss, who worked under contract for the state agency as an investment manager until five months ago.
Mr. Weiss' group was chosen from about a half-dozen applicants for the equity investment, which is part of a program to stimulate capital formation and small-business growth in Maryland, state officials said yesterday.
Newly formed Anthem Capital LP, for which Mr. Weiss is a managing general partner, has raised $12.6 million in equity investments so far -- including the state stake, $1 million from Baltimore City and $1 million from the state of Delaware, Mr. Weiss said. Private partners include NationsBank Corp. and MBNA Corp.
All told, the firm hopes to raise up to $80 million by mid-1995, Mr. Weiss said.
Until May, Mr. Weiss was managing partner of Maryland Venture Capital Trust, which placed state pension funds with investors who promised to put the money to work in Maryland companies. Mr. Weiss worked under contract for the Department of Economic and Employment Development.
Despite his close ties to DEED, Mr. Weiss, known as J. C., and Maryland officials said yesterday that the decision to put state money into Anthem was an arm's length deal.
"We reviewed the proposals. Theirs was the most favorable one," said Ronald M. Blank, director of DEED's investment financing group. "Do a number of people in DEED know J. C. and Bill Gust very well? Yes. And the only answer I can give you is the devil you know is better than the devil you don't know."
William Gust, formerly managing partner of the Chesapeake Ventures fund, also is a managing general partner in Anthem. Both men have ownership stakes.
Anthem won the DEED deal because its partners are extremely knowledgeable about venture capital and the Small Business Administration, which is expected to be a key source of capital, Mr. Blank said. Anthem was also more willing than some other applicants to take equity stakes in Maryland companies, as opposed to merely making loans, he added.
Winning a similar investment from the state of Delaware is evidence of Anthem's qualifications, Mr. Weiss said.
Anthem hasn't invested any of its money yet. Like other venture capital outfits, it hopes to take sizable ownership stakes in small companies in the hope of reaping lucrative returns. At the same time, with government money
beefing up Anthem's capital, state officials hope it will help stimulate the economy.
As a condition of taking the money, the firm has agreed to invest, in deals ranging in size from $500,000 to $3 million, in companies located roughly within two hours' driving time of Baltimore.
"Wilmington to Washington is our target area," Mr. Weiss said. "We will look at manufacturing, wholesaling, service sectors as well as technology-driven businesses."
Mr. Weiss expects much of Anthem's capital to come from a program, recently modified by Congress, in which qualified venture capital firms can seek matching equity investments from the U.S. Small Business Administration. Anthem, recently licensed for the program, hopes to raise $2 in SBA capital for every $1 it attracts from other sources.
Anthem's $500,000 Maryland infusion comes from DEED's Enterprise Investment Fund. The state has allocated more than $3 million for the fund, which can invest directly in operating companies as well as in venture partnerships such as Anthem.
Earlier this year, the fund took a $250,000 stake in Guilford Pharmaceuticals Inc., a Baltimore biotechnology company. More than $2 million is still available.
Though their aims are similar, the Enterprise Investment Fund is different from the program Mr. Weiss ran for the state, the Maryland Venture Capital Trust. The trust distributed $19.1 million, mainly from the state pension fund, to venture capital firms.