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Photo / Tim Greenway
Joe Powers, managing director of the Maine Venture Fund, says a growing number of investors have been looking at Maine startups over the years.
Startups typically depend on personal capital, friends-and-family-and-friend loans, even credit card debt.
Then they grow into other resources, including venture capital, angel investors, crowdfunding and small business loans.
The range of options can be confusing, especially for startups without a proven track record.
The financing landscape for startups has evolved over the years. Maine has long been a secondary market for startup capital, which continues to be clustered around urban tech hubs like Boston, New York City and San Francisco, says Joe Powers, managing director of the Maine Venture Fund, which finances established startups and often takes an equity stake.
“This is the reason why Maine Venture Fund was created more than 25 years ago, and the need for investment capital in Maine is still present,” Powers says. “That said, there have been more investors looking at Maine companies over the years, in addition to more funds establishing themselves in Maine.”
Most recently, the pandemic has served to better connect outside investors with Maine companies given the shift towards remote-first office work.
“The net effect is that it has become more viable to establish a high-growth startup in Maine, which is a positive development,” he says.
“This is a great time for Maine entrepreneurs and startups,” says Carlos Mello, acting CEO of the Finance Authority of Maine. “The number of organizations, financing programs, incubator programs and entrepreneurial competitions has increased and is at an all-time high in an effort to stimulate and foster successful startups in Maine.”
Photo / Tim GreenwayCarlos Mello, acting CEO of the Finance Authority of Maine, says the number of organizations, financing programs, incubator programs and entrepreneurial competitions is at an all-time high in an effort to stimulate successful startups in Maine.
Obtaining capital typically starts with bootstrapping.
That can mean “finding money in the couch, personal savings, grants, borrowing from friends and family, etc., while simultaneously being as scrappy as possible to explore whether an idea is commercially viable,” says Powers.
A founder looks for a few interested customers as evidence of “product market fit.” That, in turn, can open up additional capital options like early-stage angel capital from investors seeking a minority stake in the business.
If capital needs increase beyond what is available from those sources, venture capital can be an option. Venture capital also requires selling a minority stake in the business, but it comes from an established fund, like Maine Venture Fund, with professional investors who will partner with founders to help grow the business in a hands-on manner, Powers says.
“This all said, most businesses will not seek angel capital or venture capital because retaining 100% ownership of the business is desired, and that of course is a completely viable way to grow as well, if a bit slower,” he says.
Mello says it starts with a plan. He recommends Maine Small Business Development Centers’ planning guide, on its website, called “A Guide to Starting a Business in Maine.”
The guide takes entrepreneurs through the steps to start a business, including considerations regarding raising capital. FAME created a Business Roadmap to guide Maine businesses through steps to apply for financing and help connect them to these additional resources for business plan development and counseling, most of which are free. Other resources are available through organizations such as the Maine Center for Entrepreneurs, Maine Small Business Development Centers, SCORE Maine, CEI Women’s Business Centers and Roux Institute.
Innovation and startup capital is available through organizations such as Maine Technology Institute, Maine Venture Fund, CEI Ventures and Maine Angels.
The Maine Seed Capital Tax Credit Program, administered by FAME, is designed to encourage equity investments in Maine businesses, directly and through private venture capital funds, through state income tax credits to investors for 40% of the cash equity provided to eligible Maine businesses.
This summer, says Mello, the Maine economic development finance community will begin deploying $62 million in federal debt and equity capital under the State Small Business Credit Initiate to support the growth of small businesses, including startups. The funding will be used to catalyze or generate over $600 million in private sector investment over the next decade.
As the U.S. Small Business Administration notes, every business has different needs, and no financial solution is one-size-fits-all.
Key to the process is calculating startup costs before launching. That in itself depends on what category the startup is in: brick-and-mortar, online or service provider. The SBA offers an online calculator allowing startups to analyze the break-even point at which total cost and total revenue are equal.
Additionally, entrepreneurial pitch competitions like “Greenlight Maine” and Gorham Savings Bank’s LaunchPad, are designed to provide new companies with seed capital they wouldn’t otherwise be able to access through traditional financing.
The Maine Small Business Development Centers says funding first steps include:
Source: Maine Small Business Development Centers
Angel investors provide capital to startups or entrepreneurs in return for ownership equity or debt repayment. Maine Angels helps entrepreneurs by investing in and mentoring early-stage businesses.
Source: Maine Small Business Development Centers, Maine Angels
Maine Technology Institute offers grants, loans, equity investments and services to businesses, organizations and individuals that work within one or more of seven targeted technology sectors: biotechnology, composites and advanced materials, environmental technologies, forest products and agriculture, information technology, marine technology and aquaculture and precision manufacturing. It also helps in building support systems for innovation in Maine.
Source: Maine Technology Institute
Finance Authority of Maine provides innovative financial solutions to help Maine citizens pursue business and education opportunities. Programs include direct loan programs, bond programs, and equity capital and tax credits.
Source: Finance Authority of Maine
Federal, state and local governments offer financing programs to help small businesses start and grow their operations, including low-interest loans, venture capital and economic development grants. The city of Portland’s economic development department has creative economy and micro business loan programs.
Sources: Maine Small Business Development Centers, Creative Portland Corp.
Crowdfunding raises small amounts of money from a large number of people and is typically done on the internet.
Source: Maine Small Business Development Centers
Venture capital is provided to high-potential, early-stage startup companies. Maine Venture Fund invests exclusively in Maine companies that demonstrate a potential for high growth and public benefit. CEI Ventures Inc. manages socially responsible capital funds.
Source: Maine Small Business Development Centers, Maine Venture Fund
Entrepreneurs are diligent in finding money to get started and keep going. Here’s a sampling of vehicles used at various stages.
BluShift Aerospace: crowd equity
Brunswick manufacturer bluShift Aerospace, founded by Sascha Deri in 2014, launched a rocket prototype in January 2021, then opened a crowd equity funding campaign for further development using its proprietary bio-derived rocket fuel and modular hybrid engine. Opting away from conventional venture capital and angel investment, the startup’s crowd equity funding campaign allowed investments as small as $100, to raise $1.07 million on Wefunder.
Fogtown Brewing: friends and family
Jon Stein and Ian Heyse opened Fogtown Brewing Co. in January 2018 as Ellsworth’s first brewery, using primarily loans from friends and family. As it expanded, Fogtown won audience and judge’s awards in the 2020 Downeast Business Bootcamp Pitch Off. Each award provided $7,000 in cash and in-kind services.
Cranberry Oysters: personal savings
In 2018, Lauren Gray went full-time into her oyster-growing business, using personal savings of about $50,000. Small grants, a pitch-off award and family sweat equity followed.
Pumpspotting: seed round
In 2021, Kittery entrepreneur Amy VanHaren launched a $1.15 million seed round to grow her lactation support company, Pumpspotting, founded in 2015. The round was led by MooDoos Investments, with participation from Maine Venture Fund, Maine Angels, Launchpad Venture Group, Opus Ventures, Crystal McKellar and Punchbowl Inc.
Bumbleroot Organic Farm: Farmland Trust and CEI
Abby and Jeff Fisher, Melissa Law and Ben Whalen moved to Maine in 2013 to start Bumbleroot Organic Farm in Buxton, investing personal funds for equipment and inputs. In 2016, through Maine Farmland Trust’s Buy/Protect/Sell program and with financing from Coastal Enterprises Inc., they invested in acreage, renovation and production. Agriculture finance programs include the U.S. Department of Agriculture, Maine Department of Agriculture, Conservation and Forestry, CEI, FAME, Farm Credit East, and banks with agriculture loan programs.
TGN Detailing: Rural Microentrepreneur Assistance Program
In 2018, Caribou native Taylor Nadeau launched TGN Detailing thanks to a $33,000 microloan, facilitated by Caribou’s Northern Maine Development Commission, through the U.S. Department of Agriculture’s Rural Microentrepreneur Assistance Program, or RMAP. Congress created RMAP in 2008 to provide loan capital and grants to nonprofit organizations, community-based financial institutions, and local economic development councils, which in turn provide technical services and fixed-interest microloans up to $50,000 with a 20-year maximum term and two-year payment deferral to rural microentrepreneurs.
James Place Inn Bed & Breakfast: ROBS
In 2019, Bill and Mary Ann Hinko used a funding vehicle called “rollover for business startups,” or ROBS, to buy the James Place Inn Bed & Breakfast in Freeport. The vehicle provides penalty-free access to retirement income to buy a business and pay startup costs.
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