Receiver Appointed for 14M Capital Venture Fund

BALTIMORE (CN) - A federal judge appointed a receiver for a $14 million capital venture fund backed by the U.S. Small Business Administration that saw too many investments go sour.

Tiffani Shea Clements, a spokeswoman for the U.S. Small Business Administration, said the agency is hopeful about recovering the money, but that "it is too early in the receivership to make any educated guesses."

Robb Doub and Mark Grovic ran the New Markets Growth Fund out of an office in Fulton, Md., according to the dissolution decision U.S. District Judge George Russell III signed on April 1.

Grovic blamed the fund's performance on its economic development focus and the 2008-2009 recession.

"We are proud of the more than 300 jobs that were created in the very poorest neighborhoods of Washington DC and Baltimore, the successful companies that we built and sold, and of the fact that the fund did not miss a principal or interest payment to the SBA in its 12 years of operations," said Grovic

That filing gives the SBA full receivership of the company's $14 million portfolio, which had fallen below SBA's level of capital impairment, set at 70 percent of the entire portfolio.

Specifics on the $4.2 million losses that formed the basis for the court action are not available in the record.

Thaya Knight, an associate director of financial regulation studies at the Cato Institute, said that it was not uncommon for these venture capital firms, set up in 2003 as New Markets Venture Capital Program, to make higher risk investments that were backed with SBA debentures.

The New Markets Growth Fund was one of six organizations that the SBA approved to participate in the New Markets Venture Capital Program, according to the SBA website.

SBA created the developmental venture capital program in 2001, designing a pilot project "to promote economic development and the creation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas," according to the website.

Despite funding cuts, organizations initially accepted into the program continued to operate.

The New Markets Growth Fund was one of six participants in the NMVC program and had made investments in a wide range of businesses. Although it is not exactly clear how the two organizations are related, the New Markets Growth Fund appears to be part of a larger group of investments included in the New Markets Venture Partners.

Prior to becoming a general partner in the New Markets Growth Fund, Doub served as an associate of private equities at the Calvert Group, a $10 billion socially responsible mutual fund, and was a managing director of the Small Enterprise Assistance Funds, a $200 million managed emerging market venture capital company.

Grovic, another general partner who signed the settlement, is a lawyer and portfolio manager for Calvert and for the Small Enterprise Assistance Funds. "We believe that the remaining portfolio companies in the fund have substantial value and should be able to fulfill the outstanding SBA obligations," he said.

Both Grovic and Doub served on many of the boards of directors for the companies that New Markets Growth Fund includes in its portfolio.

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