What does Maryland know about start-ups? More than you might think.
TEDCO, whose biggest backer is the Maryland State Government, ranks among Goldman Sachs and T. Rowe Price in terms of the number of start-ups it has invested in over the past five years, according to data from PitchBook.
TEDCO is the only government-funded corporation that's in the top 10 of most active non-traditional venture capital investors. (Non-traditional VCs are typically large institutional money managers that invest in assets such as public stocks, corporate debt or real estate.) These companies are pouring money into start-ups and are often blamed for the frothy valuations of the so-called unicorns, companies whose valuations top $1 billion.
But TEDCO isn't looking at late-stage investments; instead, it's seeding start-ups. "We can actually help an entrepreneur and a technology go from proof of concept through an A-series venture round," said Rob Rosenbaum, TEDCO's executive director. The vast majority of TEDCO's investments are less than $500,000, and it invests less than $20 million annually.
"Our dollar volume is a fraction of what Goldman Sachs or T. Rowe Price, or some of these other hedge funds might do, but in terms of the number of companies we are starting and helping get off the ground, we are head and shoulders above almost everybody," said Rosenbaum.
Rosenbaum points to Citelighter, an edtech start-up whose mission is to help students develop writing skills, as a recent success. Citelighter licenses its proprietary software to schools and universities, charging $15 per student annually. TEDCO has invested $500,000 in Citelighter in two rounds of funding, enticing the company's founders to relocate from New York City to Baltimore to leverage the investment dollars and the TEDCO network.
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CEO Saad Alam says the move has been great for the company's growth prospects.
"It was life and death, quite literally. We kicked around in New York for a year and a half," said Alam. "It's been about two years and we're now one of the fastest-growing education companies by revenue of our stage, and we're just continuing to grow like a weed." Alam would not reveal Citelighter's revenue, but said it's in the multimillion-dollar range.
Baltimore's relatively small but close-knit start-up community has enabled Citelighter to reap the benefits of being a big fish in a small pond. "They call it Smalltimore, because everyone knows everyone and they have this underdog mentality," said Alam. Baltimore's start-up ecosystem has some big names behind it including executives from T. Rowe Price, which was founded in in Baltimore.
Through T. Rowe Price executive John Cammack, Alam was introduced to executives with experience in education, including Jeff Cohen, a former CEO of Sylvan Learning, Doug Becker, chairman and CEO of Laureate Education, and venture capitalists with experience growing edtech start-ups, including the founder of venture firm New Enterprise Associates, Frank Bonsal Jr.
It has also provided access to talent with experience in education — Laureate Education and Blackboard were both founded nearby. "Because there's such a legacy of education companies here, it has been incredibly easy for us to find high-quality talent, hire them in for incredibly affordable prices," said Alam.
Of course, Maryland's "Silicon Bay" trails far behind California's Silicon Valley and New York's Silicon Alley. According to the National Venture Capital Association, in the first three quarters of 2015, $390 million was invested in 58 deals in Maryland. By comparison, investors poured $27.9 billion into start-ups in California in 1,367 deals, and $5.8 billion in 345 deals in start-up New York-based companies.
But it's still having an impact locally. TEDCO measures its success in terms of job and tax-base growth. "In those measures we are doing spectacularly well," said Rosenbaum. "The state's actually getting better than a dollar-for-dollar return in the same year on our work. In addition to that, we're supporting several thousand jobs."
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An economic impact study prepared for TEDCO by the non-profit Battelle Institute found that "estimated state and local government revenues from the economic activity attributable to TEDCO activities reached $22.8 million in 2013 — a level of revenues that represent 120 percent of TEDCO's fiscal 2013 appropriation of $19 million."
TEDCO is in the process of folding in the Maryland Venture Fund to its portfolio, which will boost its 2016 investing dollars by up to $6 million.