Tucked away in the proposed biennial budget Gov. Paul LePage released in January is an initiative to provide $500,000 a year to the Maine Venture Fund, a quasi-state entity that operates like a professional venture capital firm.
The funding is noteworthy because the Maine Venture Fund, previously known as the Small Enterprise Growth Fund, has never in its nearly 20 years of existense received a recurring annual appropriation from the state. To date, all its funding ($13 million) has come from sporadic slices of economic development general obligation bond proceeds, which means the fund is never sure when or if it will receive funding.
“Without this appropriation, the fund is in danger of running out of investable funds,” Tim Agnew, a principal at Masthead Venture Partners and member of the Maine Venture Fund’s board, said on Wednesday while testifying in Augusta in support of the appropriation.
John Burns, Maine Venture Fund’s managing director, said the recurring appropriation won’t necessarily allow the fund to do new things, but it will provide a level of much-needed certainty going forward.
“It gives the fund and board a baseline level of funding to ensure that it can remain consistently active in the market, providing much-needed capital for Maine’s early-stage, scalable companies,” Burns told Maine Startups Insider. “This is a program that has proved its value and worth over these last 20 years.”
Within the last year, Maine Venture Fund has had three portfolio companies experience exits that have provided the fund with a return on its investment: Coast of Maine Organic Products and Look’s Gourmet Food Co. were both portfolio companies acquired in 2016, while another portfolio company, InterSpec in South Portland, announced just last month it was being acquired.
Funding for the Maine Venture Fund was unanimously praised during Wednesday’s testimony before a joint public hearing in front of the Legislature’s Appropriations and Financial Affairs and Labor, Commerce, Research and Economic Development committees, but some people believe the governor’s budget sends mixed messages about the state’s priorities when it comes to supporting business innovation.
While the governor’s budget would provide $500,000 a year to Maine Venture Fund, it eliminates an annual appropriation of $178,838 to what’s known as the Applied Technology Development Center system, as Maine Startups Insider reported in January. LePage’s budget also eliminates a $100,000-a-year appropriation that supports co-working developments in Maine.
The Applied Technology Development Center funds are traditionally split three ways between the state’s business incubator organizations: Maine Center for Entrepreneurial Development, the Maine Aquaculture Innovation Center, and Target Technology Center in Orono.
The governor’s spokesperson provided a brief comment to Maine Startups Insider in January in regards to the decision to cut the incubator funding, but didn’t answer follow-up questions that dug into the governor’s reasons for eliminating the funding.
Rep. Ryan Fecteau, a Democrat from Biddeford who co-chairs the Labor, Commerce, Research and Economic Development Committee, told Maine Startups Insider that the investment in the Maine Venture Fund “is huge” and “should have been an indicator of the budget priorities.”
But the governor’s zeroing out of funding for the three incubators sends the wrong message about the state’s priorities, he said.
“The figure I consistently turn to is 80 percent: Home-grown jobs contribute to 80 percent of total job growth in every state,” said Fecteau, citing a recent report from the Center on Budget and Policy Priorities. “MCED, MAIC, Target Technology, and the Co-Working Development Fund are programs fostering opportunities for home-grown business to grow jobs in Maine. State investments in these programs are consistent with what we know about ensuring job growth. Unfortunately, the governor’s budget does not prioritize such programs.”
Speaker of the House Sara Gideon released a statement in opposition to the budget cuts for the incubators.
“Our greatest natural resource is our people,” Gideon said. “Mainers are hard-working and resilient and our small businesses are the engine of our economy. However, this budget proposal strips support for the very programs that help companies grow from start-ups to the next successful Maine business.”
Efforts to reach Republican Sen. Amy Volk, the other co-chair of the economic development committee, were unsuccessful on Friday.
The Department of Economic and Community Development, the state department through which the funding for the three incubators flows, sent Doug Ray to testify in favor of the budget at the public hearing. He briefly addressed the elimination of the funding in question, shedding a bit more light on the governor’s decision-making process.
Ray said in his testimony that the statute that created the Applied Technology Development Center system called for the funds to be provided on a competitive basis, but that the three incubator organizations had essentially formed a single entity that splits the funds three ways each year. His implication being that the funding was no longer being provided on a competitive basis, as called for in the statute.
“This one-time reduction helps off-set budget increases that are beyond the department’s control and eliminates the need for additional funding,” Ray concluded his brief remarks on the portion of the proposed budget.
While Burns travelled to Augusta to testify in support of his organization’s new funding, he also took the opportunity to prepare testimony in opposition to the proposal to eliminate funding for the incubators, which he called crucial to the state’s economic development.
“Training and development of entrepreneurs is the unsexy underpinning of a successful entrepreneurial and scalable company ecosystem,” said Burns, who’s been managing director of the Maine Venture Fund for 17 years. “It requires continuous, steady effort before results can be seen…I can say with absolute certainly that the impact of MCED’s efforts and programs is evident in the greater sophistication of entrepreneurs and small company executives that eventually make their way to MVF seeking equity capital.”
Burns argued that the entrepreneurial training provided by the three incubators is a crucial piece of the state’s economic development efforts.
“MTI and MVF capital is wasted if the entrepreneurs and small scalable companies do not have the tools, the training and the ecosystem to see them through their unavoidable struggles to create large companies that will contribute to the prosperity of Maine,” Burns said. “MCED, Target and Aqua are the wheels on the vehicle. We (the state) can put all the gas (capital) we want into the vehicle, but if it has no wheels (entrepreneurial training and support), that vehicle ain t moving.”