Our View: Venture capital bills should be backed
Lawmakers have a chance to lay a foundation for a new economic base.
Everyone agrees that Maine's traditional industries alone are not going to provide the jobs we need to recover from this recession. But if not them, then what is?
At least part of the answer lies in new businesses in the technology sector that provide higher pay and more security than older businesses, which are now struggling with plant closures and layoffs.
The challenge for public policymakers will be helping these new businesses get started to replace the jobs that have been lost and, eventually, allow the economy to grow.
Two bills before the Legislature would take small steps to make that happen and deserve support.
If you ask people who have or would like to start a new business what their biggest impediment is, they say access to capital. Unlike established businesses that can borrow against assets to expand or diversify, start-ups need equity investors who are willing to take a chance on a new idea. Maine lags behind all of the other New England states in venture capital invested as a percentage of gross state product, making this a hard state to launch a new business.
One of the two bills, LD 1, would create incentives for money in the Public Employee Retirement System that has already been targeted for equity investments to be placed in funds that are seeking to invest in innovative Maine businesses.
To sweeten the pot for those funds, the state would create a mechanism to guarantee up to 80 percent of money put at risk in those Maine businesses. It is similar to the kind of loan guarantees for economic development projects already carried out by the Finance Authority of Maine.
The other bill, LD 1666, would increase the seed capital tax credit from 40 percent of an eligible investment to 60 percent.
It would also make the credits available for investments throughout the state instead of just areas with the highest unemployment.
The idea behind both programs is establishing connections between investment funds and innovators in Maine. Once they have personal connections and established track records, they will be able to generate their own business. But government can play a role in getting this activity started.
The bills won't turn Maine into a Down East Silicone Valley, but they could help start the businesses that will build Maine's future.
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6 COMMENTS
Since1710 said...
Wow, a step in the right direction. Every cent of all stimulus money should go into financing new business. Maybe the politicians are beginning to understand Economics 101. I hope so, or we are economically doomed.
March 6, 2010 at 6:30 AM Report abuse
MECommenter said...
The greatest VC investments are in IT and bioscience; areas in which there can be a relatively quick turnaround in profit (usually from the sale of the start up to a larger concern and sometimes before the start up develops revenues). New technology firms are usually created from supportive R&D conditions. Having said all this, Maine needs to encourage R&D in IT and the biosciences if it (rightly) seeks venture capital investments. This can happen if the State nurtures such select sector with R&D investments and provides entrepreneurial mentoring. I am skeptical that loan guarantees will be effective.
March 6, 2010 at 7:45 AM Report abuse
tim said...
This is a bad idea. Already, there is plenty of business subsidy in the state. I know of at least one company that received numerous MTI grants and continued to receive them even after it was sold to a large out of state company. We need smaller government. We don't need to subsidize redundant train service which will now create problems for the bus line that serves the mid coast - authority's answer; a subsidy for buses. We don't need to become a poliburo government with favors doled out to the well connected or loudest political lobbyist. We need a smaller government with private capital allocated based on the best prospects for return. If private venture capital won't do it, public money surely shouldn't.
March 6, 2010 at 8:56 AM Report abuse
jude said...
Great idea--though some state employees may worry about the retirement system losing 20% of an investment. For the rest of us it's a winner--and it's gonna be done by a Democratic legislature and governor. I guess we don't need Les Aspen and the Republicans to put in place smart policy for job creation.
March 6, 2010 at 1:53 PM Report abuse
EamonD said...
Just a plot for some Freddie Vahlsing type with party connections to steal some taxpayer money. How much FAME money did Tardy and cronies stuff in their pockets from the Moosehead scam?
March 6, 2010 at 7:33 PM Report abuse
TechMaine said...
LD1 will benefit Maine. Find more information at: http://www.techmaine.com/fund-of-funds
March 6, 2010 at 8:26 PM Report abuse