Posted on by Braddick, Laura

The Startup Ecosystem in Maryland

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Matthew Q. Lowinger
Lead Associate of Student Launch Pad
Towson University

Jan Baum
Director of Center for Innovation and Entrepreneurship
Towson University

Maryland is a hub for innovation and entrepreneurship possessing a large ecosystem of STEM professionals, a high density of technology companies, and significant research and development spending per capita, leading Forbes to rank Maryland as the second most innovative state behind only the District of Columbia in 2017 (WalletHub, 2017). Maryland’s diverse landscape in terms of business sectors, proximity to the District of Columbia, and educational institutions have been contributing to Maryland’s rise in national rankings. Job creation in the startup sector in Maryland is multiplying, and along with a dynamic innovation and entrepreneurial ecosystem, more startups continue to start in or relocate to the great state of Maryland.

In this article, we first describe the thriving startup sectors in Maryland, and expand the discussion to higher education institutions. Then, we summarize the implication of venture financing in the last section.

Startups in Aerospace and Defense Sectors in Maryland

Maryland has been thriving on the successes of aerospace + defense and information technology + cybersecurity. Maryland is the leading employer of computer scientists, electronics engineers, software developers, and information security analysts (Maryland Department of Commerce, 2018).
The aerospace and defense sectors in Maryland are one of the best in the world. Lockheed Martin (97,000 employees), Northrop Grumman (30,000 employees), and 13 of 20 other top aerospace and defense companies in the United States are located in Maryland (Maryland Department of Commerce, 2018). The supply chain for aviation and space-related products in Maryland amount to over 8,700 businesses. Maryland aerospace and defense firms have been awarded over 247 defense contracts totaling $187 billion (Aerospace Maryland, 2018). Year after year, these companies hire idealists, some of whom were entrepreneurs, to elevate their companies to be innovative and cutting-edge.

Startups in Information Technology and Cybersecurity in Maryland:
Maryland has been coined the hotbed for breakthroughs in information technology and cybersecurity. National Security Agency, National Institutes of Standards and Technology, and Defense Information Systems Agency among 60 other federal agencies all are located in Maryland. Companies in threat intelligence + automation, big data analytics, and advanced network security are leading the way for innovation in the state. Protecting the state are the 20 military facilities, like Fort Meade (location of National Security Agency), Aberdeen Proving Ground, and U.S. Cyber Command (Maryland Department of Commerce, 2018).

Higher Education Institutions in Maryland

Maryland is home to some of the finest public schools and institutions in the United States. Take Towson University which is the second largest public school in the University Systems of Maryland for example. Under the leadership of President Kim Schatzel, TU’s exemplary status continues to rise as a main contributing factor to the economy in Greater Baltimore and Maryland. Highlighted in TU 2020: A Focused Vision for Towson University, TU’s strategic plan, there is a focus towards STEM workforce development, community and state-wide strategic partnerships, and internship + experiential learning opportunities (Towson University, 2018). TU has produced Vince Talbert’s Bill Me Later, Larry Fiorino’s G1440, and Matt Goddard’s R2integrated.

As a mid-sized public institution, TU proudly has contributed to over $139.4 billion of a total economic impact since 2014. Moreover, over $887 million in output have been contributed by TU STEM graduates. Since 1866, TU has contributed a total of $2.2 billion in state and local fiscal revenues to Maryland’s economy (Towson University’s Regional Economic Studies Institute, 2015).

The total number of jobs supported grew from 2,677 in 1962 to 21,386 jobs in 2014, a growth of eight times. Maryland’s economy from $1.5 billion in output between 1866 and 1962 to $97.4 billion in output between 1963 and 2014.

Per Table 1, graduates of TU have proudly supported 2,677 jobs as of 1962, an impact which grew to 21,386 jobs as of 2014, of which over 37 percent were supported by STEM graduates. As of today, TU’s graduates support approximately $97.4 billion in output for Maryland. Since 1963, student spending has added $812.0 million in fiscal revenues. Meanwhile, TU’s operations have contributed $884.8 million to Maryland’s tax revenues (Towson University’s Regional Economic Studies Institute, 2015). TU’s contribution will continue to be significant as it focuses on innovation and entrepreneurship among other presidential priorities.

Table 1: Towson University’s Economics Impact as of 2014

Impact Type Graduate  Careers Operations Student Spending Alumni giving TU Foundation TU Event Spending
Jobs (in million) $21,386 $8,088 $2,740 $119 $17 $2,526
Output (in million) $97,396 $26,610 $12,576 $247 $24 $177
Wages (in million) $72,175 $21,770 $6,895 $199 $20 $105

Source: Towson University’s Regional Economic Studies Institute: Towson University’s Economic Impact, 2015

Table 2: Maryland Financial Incentives as of 2016

  Economic Output Total jobs Average Annual Salary Annual State Tax Revenues
Job Creation and Retention $3,771,696,805 16,545 $41,876 $36,546,638
Leveraging Private Sector Investment $1,901,148 12 $37,434 $23,618
Assistance to Small & Minority Businesses $530,907,228 2,839 $40,961 $5,793,985
Technology Startups & Innovation $708,039,587 257 $55,235 $7,584,363

Note: Maryland Department of Commerce: Consolidated Incentives Performance Report FY2016, 2016

Maryland Fuels Small Businesses and Startups Through Incentives

Under the Hogan administration, Maryland is open for business. Maryland is fueling small business and startups by providing an abundance of resources to launch global brands for women + minorities and military veterans. There are over 40 financial incentives for businesses revolving around agriculture to cybersecurity to energy. Of the 40 different financial incentives, there are various types of opportunities including grants, loans, venture capital investments, tax credits, training + services, bonds, and tech transfers. In the fiscal year of 2016, Maryland’s Department of Commerce provided 584 businesses opportunities for financial incentives totaling $96,874,782. This resulted in the creation of 24,000 jobs and annual State tax revenues of $53.7 million. Maryland’s Department of Commerce invested $46 million in direct assistance and $50 million in tax credits (Maryland Department of Commerce, 2018).

Over 20,000 Maryland-based jobs have been created in 2016 because of the strong Maryland incentives to foster an entrepreneurial ecosystem. As per Table 2, job creation and retention leads the way by creating the most jobs totaling roughly 16,500 jobs while having an economic impact of $3.7 billion. Over $5 billion resulted from the financial incentives offered through the State. Maryland supports minority entrepreneurs. With this focus, startups in Maryland created 2,389 jobs (11.78% of the total jobs created).

Venture Capital, M&As, and IPOs in Maryland

Maryland has been experiencing tremendous growth with the size of venture capital deals. Typically, Silicon Valley, New York, and Boston have major cities for venture deals. Steve Case, Founder of AOL, has a program called “Rise of the Rest” where he highlights up-and-coming cities for venture investments. One of Steve Case’s tour stops was in Baltimore, Maryland. He emphasized that there was incredible growth coming out of Baltimore and the rest of Maryland.

Venture funding for Maryland has skyrocketed in recent years. For example, companies like Personal Genome Diagnostics ($75 million) and ZeroFOX ($40 million) have led the States’ increase in venture funding from $87.2 million in 2016 to $276.8 million in 2017. This is a growth of 217.43% over one year. While the size of the venture deals, the number of deals remained constant year-over-year at 66 (Technical.ly, 2018). The unprecedented growth heated up even more in the third quarter of 2018. In the first three months of 2018, 16 Maryland companies raised $406 million, a 46.68% increased from all of 2017. In all of 2018, 17 Baltimore startups received venture funding of $157.8 million (Technical.ly, 2018). This is the second consecutive quarter in where Maryland startups received funding of at least $400 million; it is the fifth consecutive quarter of at least $100 million raised. Gaithersburg-based biotechnology company Viela Bio received the largest amount of funding thus far at $250 million. In the third quarter, Maryland firms raised $251 million (Baltimore Business Journal, 2018). Internet and healthcare ventures received the most amount of deals at six. Healthcare companies received funding of $377.7 million. Baltimore-based companies were able to collect $100.68 worth of funding with Dracen Pharmaceuticals leading $40 million of the total amount in the city (Baltimore Business Journal, 2018).

The largest deal included a $78 million investment for IronNet Cybersecurity (based in Fulton). WindMIL Therapeutics, a startup developing new cancer treatments, raised the largest round in Baltimore at $32.5 million. The second and third largest deals of 2018 in Baltimore came from Pixlligent, a nanocrystal manufacturer, totaling $7.6 million and LifeSprout, a soft tissue developer, raising $6.5 million (Technical.ly, 2018).

Baltimore’s small businesses and startups have experienced drastic growth in the past decade. This is especially apparent over the past two years when venture capital and other forms of equity investment exceeded $200 million annually, compared to $50 million invested per year nine years ago (Baltimore Business Review, 2018). While the number of investments of Baltimore City small businesses has slightly fallen from 2015’s high of roughly 80, the total dollar amount continues to rise. The majority of funding of years 2007 through 2016 have been dominated by investments of $250 thousand and under.

Baltimore City entrepreneurs have received $845 million of funding from 2007 – 2016. Most of the funding came in the seed and early stages totaling 405 investments. As shown in Table 3, 21% of the venture funding came from Maryland-based firms. In order for Maryland to retain its exemplary status as a startup hub, there needs to be more funding from Maryland-based venture firms.

Table 3: Venture Capital Funding by Small-Medium Enterprises in Baltimore as of 2016

Seed Early Late All
Number of Individual Investments 174 231 88 493
% of Investors from Baltimore 29% 16% 14% 21%
% of Investors from Maryland 28% 25% 18% 21%
% of Investors Outside of Maryland 43% 59% 68% 58%
$ Amount $48,100,00 $376,968,276 $417,721,846 $842,790,122

Source: Baltimore Business Review: “Financing Baltimore’s Growth – Measuring Small Companies’ Access to Capital”, 2016

Future Trajectory of Startup Growth

While it is hard to predict startup growth in Maryland over the following years, it is to be expected that innovation in Maryland will continue to rise. Being so close to the Nation’s Capital has a large factor in Maryland’s future.
During the second quarter of 2018, investors poured $247 million into 23 Maryland-based companies. One-year prior during the second quarter, $102 million was invested in Maryland startups. 58.7% higher. Halfway through the year venture funding has reached $655 million. This number is more than two-thirds of last year’s funding topping $903 million (Technical.ly, 2018). It is fair to say that startup growth in Maryland will continue to rise year-over-year if venture funding continues to rise.

Overall, the next wave for startup talent is Maryland. Silicon Valley, New York, and Boston are the old wave of tech talent. Although the San Francisco region still represents a large proportion of venture capital, Baltimore and Washington, D.C. continue to rise in the rankings. As more venture funding becomes available in the region, startup jobs will continue to flourish.

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