Although the Alex. Brown & Sons name has officially disappeared from the Baltimore scene, such legacies as the locally based ABS Capital Partners venture capital group should help guarantee the once-venerable investment bank is never forgotten.
Started in 1990 within Alex. Brown, ABS Capital became a separate company in November 1995. The firm has made a mark by investing in good companies, generating double-digit returns for investors and making sure its venture companies are on solid footing when they are sent on their way, ABS officials and its partners say.
"If you invest in great companies, and help them become even greater companies, they will continue to do well over a long period of time," said Timothy T. Weglicki, who co-founded the firm with Donald B. Hebb Jr.
(ABS Capital Partners, at 400 E. Pratt St., shouldn't be confused with ABS Ventures, a group still associated with Deutsche Bank, the owner of what was once Alex. Brown & Sons.)
Venture capitalists are essentially financial middlemen, bringing together cash-laden investors and companies hungry for growth financing.
The middlemen work to safeguard the investment in these growing venture firms, usually through board supervision, management support and customer contacts.
The ultimate goal is to cash out with a big profit for investors, typically divesting the venture firm through an initial public offering of stock, or even an outright sale to another party.
Venture capital money is one of the lubricants that keep the gears of the U.S. economy from seizing, creating jobs for workers and new wealth for investors, according to a marketing expert who has seen venture capitalists in action.
"They are critical in today's economy," said Eugene H. Fram, a professor at the Rochester Institute of Technology College of Business.
"With early-stage companies, especially startups where they can't go to traditional lending institutions, this is where they serve some of the greatest needs. In terms of later-stage companies, VCs are very important in keeping an embryo organization going, and keeping together."
ABS Capital has had some notable local successes, even helping another Alex. Brown offspring - Brown Investment Advisory & Trust Co. - gain independence from its parent firm. Despite this, ABS Capital remains better known in venture capital circles than in its hometown.
"ABS is a quiet giant," said Richard Kay, who founded OTG Software Inc. in 1992 and built the Rockville firm into a company that Legato Systems Inc. bought for about $400 million in May.
OTG Software - which benefited from a $17 million booster shot of ABS cash - illustrates the kind of company with which ABS prefers to become a partner.
"They had a strong software business, and their products were good," said Hebb, who serves as ABS' managing general partner.
Many venture capitalists seek out "early stage" startups - firms that aren't far along in their development, may have no profits and possibly no sales, and are sometimes little more than a concept.
Venture capitalists who invested heavily in such concept companies, and rushed them into the IPO market, helped inflate the "dot-com" bubble that burst two years ago.
But ABS works mostly with established companies limited within its specialty sectors: software and services, health care information and technology services, and communications, including hardware and software businesses and media firms, Hebb said. These firms usually have a dependable revenue stream and a solid customer list.
This lower-risk strategy reduces the chance of big mistakes but hasn't significantly reduced investor returns: Hebb won't specifically quantify what ABS earns for its investors but says the returns are well into the double digits. Some, like OTG, are big winners. "They are [overall] very good returns," he says.
In each company, ABS invests from $10 million to $40 million from one of its venture capital funds. And it's an active investor, too: It usually takes a seat on the company's board, offers management guidance and even some links with other companies in the ABS portfolio.
Its portfolio companies are fortunate because ABS isn't heavy-handed where it doesn't need to be and is a patient patron, giving the companies time to execute on their business plans, instead of dressing them up to cash out quickly, said Kay, the OTG founder.
"They never pushed me in a direction that would have harmed the firm," Kay said. "It was always 'What's best for the company?' first, and never 'What's best for the VC?'"
Over the past 10 years, ABS has invested in about 60 companies, using money it raised in four venture funds.
Its first fund, closed in 1993, was $150 million. Its second fund totaled $300 million when closed in 1996. Its third closed at $425 million in 1999. And its most recent one had reached $450 million when it closed to investors in March 2001.
It takes two to four years to invest that money, and ABS still holds stakes in some of its earlier investments, according to Hebb. Several firms remain from its 1993 fund, a handful from its 1996 fund and about 15 firms from its 1999 fund, ABS said. It's still investing the money from the 2001 fund, according to Hebb.
Kay says the venture firm is using the right formula to succeed and believes these locally based venture capital funds will be nurturing companies for years to come.
While he's very proud of what he accomplished with OTG, it took the help of these still-unknown Baltimore venture capitalists to make it a really big hit.
"As I look back and reflect, we couldn't have reached that without Don Hebb and ABS," Kay said.