A venture fund affiliated with the University of Maryland will invest in promising companies in economically distressed areas from Maryland to Northern Virginia, an official involved with the fund said at a news conference yesterday.
The New Markets Growth Fund, a venture capital fund created by the Dingman Center for Entrepreneurship at Maryland's Robert H. Smith School of Business in College Park, is one of seven such funds authorized nationwide under a Small Business Administration program designed to help companies in distressed areas often overlooked by other venture capital funds.
"The potential for providing excellent returns to the investors [in the fund] is very high," said Donald M. Spero, the Dingman Center director who is part of the growth fund's management team. "There are untapped [companies] in low-income areas that are being overlooked."
The fund will have $26 million at its disposal when it begins operations, Spero said.
Once the venture fund has raised $10 million in private capital, the Small Business Administration would inject $10 million.
Of that $20 million, the SBA half would be available as loans, while the $10 million in private money will serve as true venture capital, allowing the fund to take an ownership stake.
The other $6 million of the $26 million total is for "technical assistance" for the venture capital-financed startups.
Once $3 million is raised privately, the SBA would provide the rest. Companies would get help in such areas as accounting, financing, marketing, investment banking, technology assessment and management strategy.
At the news conference, the Federal Home Loan Bank of Atlanta announced a grant of $250,000 toward the technical-assistance money.
The fund is a corporation separate from the university, although the business school is an investor, according to Spero. So are some of the leading local banks.
So far, the venture fund has raised $9 million of the $10 million in private capital and must get the rest by Dec. 31. Spero said he's confident the money will be in hand by August.
Officials hope to provide assistance to as many as 40 companies, in amounts ranging from $50,000 to $2 million.
Several companies have offered to move into economically distressed areas to qualify for the funding. Spero said he is not surprised.
"Having the resources of a university, not to mention world-class MBA students [who will work with the venture-financed firms] is unheard of for a $20 million venture capital fund," he said.