Maine Fund of Funds

WHY FUND OF FUNDS:

• Drive Maine’s level of venture capital investment higher
• Attract attention of top venture funds: Maine continues to be a flyover State; almost 2/3rds of 2007 VC went to Southern California and greater Boston
• Create a more fertile private funding environment for commercialization of Maine’s R&D efforts without burdening the State’s tax revenue

BENEFITS: More money for more Maine companies!!

• Stimulates the availability of funding for innovative companies
• Increases the State’s venture capital (VC) culture and infrastructure
• Increases the number of jobs in high-growth, knowledge businesses
• Elevates the profile of innovative Maine companies
• Creates a competitive investment market in the state
• Leverages investment funds through syndication
• Supports commercialization of R&D efforts
• Matched to State economy

The mechanics:

• Small Enterprise Growth Board (SEGB) is charged with establishing Fund of Funds
• SEGB hires experienced, professional management for Fund of Funds
• Fund/Board borrows money at best rate available from lender(s) through a competitive process
• Fund management invests in variety of VC’s which specialize in growing companies in Maine’s strong industry sectors
• Fund management uses investor prerogative and leverage to encourage VC activity in the State
• VC returns to Fund repays debt to lender
• If “profit” after debt and cost of program covered, State retains
• If “shortfall” (i.e. returns don’t cover debt and costs), then State makes lender whole (limit of $10 million per year up to $80 million)

The Economics:

• Returns from the Funds investments in venture funds covers the cost of borrowed funds and cost to manage program
• The State derives the economic development benefits and any returns above the costs.
• If the returns are insufficient: the amount that the State must pay is limited to the shortfall in the lenders required return, and these possible costs are deferred
• The 10-year average return for Venture Capital is 17.9% annually; cost of capital should be Prime Rate (currently 6%) or less