There’s twenty-five million dollars of new venture capital available in this region for startup entrepreneurs: that’s the story being shared by our next guest, Andy Jones. Andy’s managing director of the Maryland Venture Fund, he’s been in the venture industry for more than twenty-five years, and during that time has raised and deployed billions of dollars of capital here in the D.C. region. And, he’s also been an entrepreneur in software for many of those years. Andy, thanks for joining us.
JONES: Thanks, Jonathan.
ABERMAN: I think the place I’d like to begin is Maryland Venture Fund, because you guys just closed on a fund. It’s a very interesting application of what I would call the “public-private model.” You know, a public entity, Tedco, successfully deploying capital in Maryland for many years and startups, but now leveraging private capital to expand its mission. Talk to me about that.
JONES: Sure. So, we just closed on a brand new vehicle. It’s a partnership of traditional venture capital funds with the Maryland state public employees retirement system, and this is quite unique because, that system, they manage 50 billion of assets for retirees in the state of Maryland. So this is very important money. This is teachers’ retirement, firefighters’ retirement money, police retirement money. Their whole mission is to maximize returns for that 50 billion dollars, and they’ve entrusted some of their capital with us to invest in the venture capital asset class here, locally, to build and create big companies, but driven first by venture capital returns for them.
ABERMAN:So this is a great example of how a government, or a quasi-government entity, a pension fund and so forth, can foster innovation. Obviously, you had to satisfy these investors from a fiduciary standard, because they can’t just give money away, that this was a good market to invest in. So why, and how are you able to convince them that this is a good place to back entrepreneurs?
JONES: So, as you and I both know, Jonathan, having been in this region for decades, there’s been a lot of big successful businesses dating back to the AOL days, and the telecom days. There’s been a lot of value creation for investors. So, the reason the pension fund invested with us, they see the opportunity in this region and because of the experience with team, myself and the team we’ve built, they’ve trusted their capital to us to go fund the next generation of great businesses in the region.
ABERMAN: Clearly, with the recent government shutdown, which came and went, and the possibility over time with continued resolutions, we might have another one or who knows what. A fair number of people got really concerned about, geez, we’re so reliant on the government sector, the federal government sector, and we should invest more in the private sector. Tell me, what is going on in the private sector right now? Where you find concentrations of excellence to invest in? Where do you see the industries that are going to drive our private sector economy going forward, from the standpoint of venture capital?
JONES: This is the land of opportunity, and in terms of areas that interest us here locally, health care is a great example. So, one of the great early investments we made out of this new pension fund investment vehicle is a company here right in Bethesda, called Aledade. The founder of Aledade, a fellow named Farzad Mostashari, actually came out of the federal government. He was one of the guys that drove health care policy in the government, and this is a very exciting business he’s building quickly. It’s accountable care organizations whereby they are partnering with primary care practices to improve the quality of patient outcomes and lower the cost of the healthcare delivery. So it’s attacking what is a huge problem in this country, which is this ever-escalating set of costs rising in the healthcare system, so he’s going about it in a very unique way. We surrounded him with our capital, he’s attracted significant west coast Silicon Valley capital. We’re the only local investors in the deal. Google Ventures, Venrock, I’m mean these are storied names in the investment industry, and we’re building the company right here in the region.
ABERMAN: That’s a recurring theme. When I look at the venture capital numbers, what I see is that once a company gets to the point where it’s a proven, scalable model, there’s ample capital coming in the market from outside. You look at OneWeb and their raised, you look at Tenable, you look at EverFi, all multi-hundred-million dollar deals or more, but there’s a big gap. You know, matching up entrepreneurs with that million or two million dollars of capital, I keep hearing and that’s a big void. Isn’t it a big void?
JONES: I would argue it’s not. If you can find the right people and marry them with the right opportunities, and when I say the right people, people that have been involved in building big businesses before, or have specific history of success in their in their past, marrying them up with new opportunities whereby the first capital is a few million dollars, is relatively small. Happens all the time. There’s another great business that we’re involved with over in Bethesda. Founder came out of Micros, a big point of sale company built up in Maryland. It was a public company. It was ultimately purchased by Oracle for over five billion dollars. He, once his non-compete came off, said I can go beat, now, Oracle, the fella that bought my business, in this hospitality software space, which he ran at Micros. We’ve, started a new business with this guy, his name is Jos Schaap. It’s a hotel property management system software. Basically, next gen software competing, really, against his old employer enquirer. So that business started with a few million dollars of capital. It’s in the earlier stages, it’s growing very nicely. So again, I think that’s a great example of: there is capital for entrepreneurs in the right opportunity.
ABERMAN: Last thing before I let you go, clear something up for our listeners. I see a lot of people get really confused about whether or not their business is suitable for venture capital, or they think that they should get venture capital. Most businesses don’t ever get venture capital and don’t need it. What makes a business suitable or desirable from a venture investor’s perspective to invest in?
JONES: Great question. I would answer that on several vectors. First of all, what problem are you solving? You need to be addressing big problems in the world, whether it’s what Farzad is doing at Aledade, you know, this massive problem we have here in the U.S. with rising healthcare costs, to what Jos is doing at Stay In Touch, which is a lot of the software the hotel industry is very legacy, you know, older software. So what is the problem you’re solving? Then, it’s how big is the market you’re attacking? What is the competitive landscape, and how is it going to evolve? And, most importantly, management management management? Do you have the team, or can you attract the talent as part of the founding group of this business, and really build it up and execute it?
ABERMAN: So the bottom line is that if you don’t get venture capital, it doesn’t mean that you don’t have a good business. It doesn’t make you failure. It just means you don’t have a business that has explosive growth potential at that moment in time.
JONES: Correct. There are a ton of great businesses that are perfect as sole proprietorships, or partnerships, and they’re wonderful businesses, and there they’re a lynchpin of growth in this country. You know, venture capital, as you correctly say, it’s really about growth and attacking giant problems and opportunities.
ABERMAN: Well, Andy, thanks very much for taking a time to talk with us about these issues today, and best of luck with your new fund.
JONES: Thanks, Jonathan.
ABERMAN: That was Andy Jones, managing director of the Maryland Venture Fund.