Consultant recommends more risk capital
Copyright © 2003 Blethen Maine Newspapers Inc.
FAIRFIELD — Attracting new businesses to Maine means slugging it out with competitors on a national and international scale, a business strategist told area planners Tuesday.
L. Joseph Wischerath, executive vice president of Maine & Company, said fighting to win in the financial world these days means increasing the availability of risk capital —startup money for new businesses with little in the way of assets or collateral to support a conventional loan.
"Business attraction is extremely competitive — it's the last frontier — everybody's in it and you're fighting it out," he told a meeting of the Kennebec Valley Council of Governments. "I would like to see more risk capital available at the community level. A little bit more flexible capital available."
Established in November 1995, Maine & Company's mission is to attract new business into the state. Based in Portland, the nonprofit company is privately funded.
The nearly two-dozen investors in Maine & Company include Anthem Blue Cross Blue Shield, Bangor Hydro, Central Maine Power Co., Verizon and L.L. Bean.
Risk capital typically is money that is invested in a business venture in exchange for stock or a partnership in a new company. The terms of getting the money and paying it back often are not as conservative as that of a commercial lending institution such as a bank or a credit union.
"Usually one of the biggest needs is business capital," Wischerath said. "It could come from a lot of places. It's money to help early-stage businesses to get started."
Risk money can come from area development groups, such as KVCOG, but also can come from colleges, groups of speculators, philanthropists or individual investors, according to Wischerath.
He said Maine is competing against other states that have hefty "war chests" of risk capital on hand.
"It's debt, but on easier terms," he said. "Groups like community economic development authorities ease up on the terms for small companies with no collateral.
"Why not construct a fund that is a little more tolerant of risk? One thing we are not good at is risk capital."
Wischerath said using the Internet, having solid leadership in all sectors, establishing relationships in and out of state and making money available with less conservative terms are essential to attracting business.
"Business attraction is a game of elimination — you've got to get in the hunt, you have to get there first," he said.
James Nyman, acting director of the state Office of Business Development, agreed.
"There's never enough risk capital available," Nyman said. "With federal and state programs, our programs take higher risks than what banks might take."
He said the state Department of Economic and Community Development's gap financing addresses the discrepancy between what conventional lenders will supply and the needs of a new business.
Community Development Block Grants go above and beyond traditional lending institutions, but he said more has to be done to get needed seed money to new businesses for job and tax-base improvements.
"There's not enough of that money out there," Nyman said. "Humans tend to be risk-averse."
He said the Finance Authority of Maine is the state's "key colleague" in securing startup money for businesses.
FAME Chief Executive Officer Charles Spies said safe lending is the rule with commercial banks and that is why FAME is there to help.
He said FAME provides money in its Seed Capital Tax Credit Program, which gives private investors credit for up to 60 percent off their income tax returns as an incentive.
FAME also offers its Venture Capital Revolving Investment Program and the Small Enterprise Growth Fund, a state venture capital fund.
Spies said the risk is in the fact that there is a high failure rate and potential loss of investment in small, startup businesses in Maine.
Doug Harlow — 861-9244
dharlow@centralmaine.com