The History of Maine Venture Fund

Editor's Note: John Burns, the longtime Managing Director of Maine Venture Fund (currently serving as Strategic Advisor to the Fund), recently reflected on the origins and evolution of MVF since its founding in 1996. John is working remotely and in a part-time capacity as he travels the country with his family. He wrote this blog from Red Eagle campground, a Blackfeet tribal site in Two Medicine, Montana.

Statute & history: The Small Enterprise Growth Fund (SEGF) was created in the 117th Maine State Legislature in 1995-96. A "body corporate and politic and an Instrumentality of the State of Maine …", the full authority for the Fund (and Program) resides with the Small Enterprise Growth Board (SEGB). Unlike its later-established cousin, Maine Technology Institute (MTI), created in the 119th Legislature in 1999 under the same Gov. Angus King administration, SEGF did not have a president or other individual leader defined in the statute. In MTI's case, the governor appoints the president who reports to the Department of Economic Community Development commissioner as a DECD employee. MTI is a 501(c)(3), and all other MTI staff members are employed by the nonprofit.

It's pretty clear that the legislators who created SEGF intended for this pot of money to be doled out by consensus of the SEGB, perhaps using Finance Authority of Maine employees "… to provide funding for disbursements to qualifying small businesses in the State seeking to pursue an eligible project." In the first three years of the Fund's operation, that is precisely how it went. The Fund was first seeded by $5 million from a larger bond issued in 1997, and the SEGB made its first investment in November 1997. From 1997 to 2000, a commercial loan officer at FAME was assigned to assist the SEGB with application screening, analysis, closings, and more, in addition to their other duties at FAME. Several FAME loan officers rotated through this role. The statute was non-proscriptive about the types of securities it could, would or should receive for its "disbursements." However, a clause states: "The board may hold an ownership interest in a private enterprise when it is determined by the board that such an interest is necessary or desirable in order for the fund to obtain a reasonable return on its investment in the private enterprise."

There was only one form of security that the SEGB purchased between 1997 and 2000 – a $150,000 six-year note, the original maximum authorized. This note accrued interest for three years, at which time it began interest payments and was then convertible, at the SEGB's option, into the company's common equity for 10 percent of the ownership interest in the company post-conversion. No "pesky" negotiations over valuations! The idea, of course, was to keep paperwork consistent, closing costs low, negotiation limited, etc. Inevitably, after getting about eight investments in the portfolio, it became clear that the Fund needed a dedicated manager. The one-size-fits-all terms weren't necessarily market-appropriate. Most in the market viewed SEGF as some strange in-between entity that was neither a loan fund nor an equity investor, certainly not a sophisticated venture or investment fund. One investment recipient listed the SEGF investment on his balance sheet as "government cheese," and I'm afraid that was not a unique opinion. 

In the summer of 2000, the Board hired a dedicated Fund manager. At that time, the Board was not set up to hire employees, and so the arrangement agreed upon was that the manager would be hired by FAME and dedicated to the Fund for one year, after which the Board would hire the manager. Shortly after the direct hire by the SEGB, the Board also hired a FAME commercial loan assistant to provide office operations management.

In the early '00s, deal flow was a trickle, the dot.com experience scarred investors, and SEGF began experimenting with more negotiated deals using preferred equity. Deals that better suited the company and the kinds of capital they needed (too early for debt and beyond founder, family, friends and foolhardy strangers – “FFFF”) and better aligned with co-investor interest (e.g. Coastal Ventures LP and its 2nd fund CVII, sophisticated private investors like Kip Moore, and CEI Community Ventures, another for-profit venture capital subsidiary of CEI, and one of only seven New Markets Venture Capital Funds created in 2001 as part of the recovery from the 2000 dot-com bust and recession).

The SEGF statute explicitly states that "The fund must be deposited with and maintained and administered by the Finance Authority of Maine …". Therefore, all State allocations to SEGF must be deposited with FAME. The governor, the Legislature's Joint Standing Committees on Appropriations, "IDEA," and all other State officials regard SEGF as a program within FAME. When an appropriation, or bond proceeds, are allocated for SEGF, it is made to FAME, which keeps separate books for SEGF. In addition, FAME provides cash management and some accounting services for the Board & Fund.

In the early '00s, SEGF set about to create a unique identity, trying to set it apart from an unknown "program" within FAME. A unique website was created, with corresponding unique email addresses ("segfmaine" instead of "famemaine"). A formal contract was created with FAME for finance and administration, cash management, and legislative liaison access and general counsel support. That contract hasn't changed much over time.

In 2005, we hired our first Investment Manager, Jayme Okma Lee. That gave us a second investment person, giving us more bandwidth and greater reach. Personnel subsequently moved out of FAME's offices and established an office in Brunswick, and Fund management assumed more of the accounting responsibility. In late 2012, we hired our first Entrepreneur-in-Residence, Des Fitzgerald, a highly respected entrepreneur, CEO and exited innovator. Respecting and appreciating our ties to FAME, the Board and management sought as much independence from FAME as we could construct without violating the statute. The effort has been to gradually create an image and reality of an independent, professionally managed venture capital fund. In 2013, SEGF rebranded as Maine Venture Fund, a d/b/a/ for the impossible to remember, completely unremarkable, and clearly government-bestowed name of Small Enterprise Growth Fund. Creating a unique brand and reputation as a solid, sophisticated, value-added equity investor is a process that continues to this day.

Legislative relations have always been tucked within FAME’s framework, and the Fund has enjoyed and greatly appreciated a cooperative and successful collaboration with FAME's legislative liaison personnel and process. From 2004-12, when there was a vibrant Office of Innovation (OI) within DECD as part of the broad Maine company support ecosystem, MVF was part of the plans of the OI and the Maine Innovation Economy Advisory Board (MIEAB). Without that coordinating center of effort and activity, each Maine economic support entity is left to support itself legislatively. The Mills administration has created a new position, a very welcome addition, which now affects some of the OI's role, though not with as much authority and (currently) without "staffing" MIEAB. MTI annually receives a roughly $6 million appropriation and has a gubernatorially appointed president who is a DECD employee. Therefore, MTI has a much higher profile and gets the lion's share of legislative attention and focus for R&D funding.

Since 1999, MTI has received roughly $150 million in regular appropriation. By nature of its control system and profile, MTI has been the conduit for numerous 'special' bond programs, which resulted in grant and loan programs managed by MTI to the tune of perhaps another $130 million. Their 2020 annual report says they have "dispersed $280 million in 2,950 distinct projects” since 1999. In particular among these special bond programs were the Maine Technology Asset Fund (MTAF) bonds, which were two special bond programs administered by MTI, each for $50 million.

By contrast, MVF received one $3 million appropriation in 2000, toward the end of the King administration when there was a State surplus, and did not begin to receive an appropriation again until 2018 ($500k per year). By then, the MVF had a somewhat higher profile, some solid exits, and a DAFS Commissioner who knew about and understood the importance of MVF in the ecosystem. Bond monies for MVF have always come from getting MVF tucked into a larger bond bill thanks to some “sponsor.” For example, bond funds that came to SEGF between 2004-12 were due to a comprehensive plan backed by the director of the Office of Innovation, often as part of the MIEAB five-year Innovation Plan. The 2018 Bond proceeds came through collaboration with a friendly Jackson Laboratory (JAX) legislative liaison and MTI, who both convinced the bill sponsors, along with a hired lobbyist, to alter the JAX-initiated original $50 million MTAF bond bill so that it carved out $5 million for MVF.

In summary, the Small Enterprise Growth Program began as an experimental loan fund for FAME to administer. Over time, the Program has developed into a successful venture capital Fund for high potential Maine-based companies that intend to significantly scale and contribute meaningfully to the State's economic growth and development. Through strong governance provided by gubernatorially appointed members of the Fund's Board, sound management, and collaboration with FAME, MTI, and others within the entrepreneurial support system, the Small Enterprise Growth Program has flourished into what it is today, commonly known as Maine Venture Fund.

About Maine Venture Fund

Maine Venture Fund invests in dynamic businesses that have the potential for significant growth and impact in Maine. For more information, visit maineventurefund.com. 

Inquiries:
Terri Wark
Maine Venture Fund
(207) 924.3800
terri@maineventurefund.com