Struggling technology start-ups with real potential – even revolutionary concepts in their field – are scattered across Maine.

But year-in and year-out, Maine does such a poor job of attracting venture capital that many of these firms languish and die before they can move their technology from the laboratory to commercial production.

Maine is next-to-last for venture-capital investment in New England. Only Vermont and, during an unusual quarter here and there, Rhode Island do worse, according to the PricewaterhouseCoopers MoneyTree survey, a quarterly report on venture capital investment.

Still, venture capitalists who watch Maine companies say the state’s policies and initiatives are on the right course and will eventually bring more money here.

“I see a state that has been heading in the right direction in terms of public investment in what it takes to develop growing businesses, but it takes a period of time,” said Timothy Agnew, vice president at Masthead Ventures in Portland. “Maine has some inherent obstacles; just the size of the state and its geography. It’s a rural state, and it’s one with limited higher-education research facilities, compared, for example, to Route 128 (in Massachusetts).”

The challenges show up in the numbers.

In the fourth quarter of 2002, venture capitalists invested only $1 million in Maine, compared to $9 million in Rhode Island, $67 million in New Hampshire, $72 million in Connecticut and $460 million in Massachusetts. Only Vermont, with funding of less than $1 million, saw a smaller influx of capital.

In the boom year of 2000, when venture capital funds were plentiful, Maine saw a high of $63 million in the third quarter. By contrast, New Hampshire companies collected $175 million in that quarter and Massachusetts, with multiple clusters of bleeding-edge technology start-ups, assembled just under $3 billion.

Venture capitalists say they follow the deals, putting their money into companies that might make them money. And they don’t see a lot of deals in Maine.

The reason, say investment experts, is that Maine does not have the kind of a commercial infrastructure that it needs to create a thriving start-up marketplace, one that attracts venture capital.

A state needs three “legs to the stool” in its economy, said Andrew Clapp, general partner at Brook Venture Partners in Boston.

Big companies that produce “frustrated engineers who want to leave” and create their own start-ups.

Great schools that provide not only an educated work force but research and development that can be commercialized.

In a typical economic chicken-and-egg problem, capital has to be there because capital helps create start-ups that, in turn, draw even more capital.

“When you have all three, you have a boiling cauldron of entrepreneurial activity that will yield new ventures,” said Clapp. “If any one of these is missing, you’re operating on a severely restricted basis.”

Maine does not have the kind of world-class research behemoths, like MIT and Harvard, that are found in Massachusetts. The state’s top scientific educational center sits in Orono, roughly three hours north of the state’s economic center in southern Maine.

The big industrial companies that produce entrepreneurs are rare in Maine, Clapp said, and that’s not likely change. Maine businesses might want to create bands of technology companies, large and small, that get together for professional development and training, he suggested.

This association could take the place of the large manufacturing plants or corporate headquarters. Engineers might meet engineers, talk about their ideas and get together to form start-ups.

It also might help fill another perceived gap in Maine: the scarcity of charismatic leadership and world-class technical skill.

“You can’t build a company with one person,” said Kip Moore, president of Portland-based Little Diamond Island Enterprises, a company that makes early stage investments in technology companies. “In general, you need a variety of skills, and to get those kinds of people to come work for you, you need some less tangible skills – leadership, charisma.”

Moore has seen this requirement throughout his career – 10 years in Maine where he’s invested $10 million in start-up companies and, prior to that, as a partner in a venture capital firm in New York.

“To start a company successfully, you need one person who’s got all this stuff or two or three people who have the ability to motivate, attract, create a team,” he said. “They have to be pretty darn convincing to early stage investors. You have to look them in the eye and say, `Give me your money and I’m going to create an immense amount of value.’ “

“Maine doesn’t have those people in very large numbers, or at any one place,” he added.

Experienced company leaders often are not interested in moving to the state because they usually have to sell a home to move here, transplanting a family and convincing a spouse who is a working professional to make the change.

“Those things make it a sticky wicket,” said Moore.

This scarcity of human resources is compounded by the lack of investment that comes after government funding but before venture capital funds. Such high-risk, low-level funding is often termed “angel funding” and helps move a company’s product from the research- and-development stage into the hands of customers.

That usually is the point – when a start-up actually has sales – that venture capitalists get interested.

Patrick Martin, a program manager at the Maine Technology Institute, acknowledges that there is a gap in the small grants the Legislature authorized it to provide and taking a product to market.

“MTI steps in with high-risk capital, right at the beginning,” said Martin. “Even after we’re done, it’s still too high-risk for most (venture capital) funds.”

Still, the creation of the institute represents one example of several steps Maine has taken in the right direction, investors said.

Since its founding, the number of start-ups in Maine has gone up, said Joe Wischerath, co-founder of the Maine Investment Exchange, a forum that enables qualified entrepreneurs to make presentations to investors who are looking for deals.

“It’s been increasing slowly but surely over time,” he said. “Some of that is a result of MTI seeding money into the marketplace.

“It’s not government’s responsibility (to fund industrial development), but if it’s not happening, do you want to sit and wait?” Wischerath added. “Clearly, it wasn’t happening on its own.”

He noted that the money MTI invests in start-ups leverages other funds from the federal government and private investors. According to a recent report, the institute invested $1.81 million into companies before June 2002, an amount that was paired with more than $16.3 million in related investment.

Another key element of the state’s effort to foster commercial innovation is the Finance Authority of Maine’s Seed Capital Tax Credit Program. Under the program, a qualified investor can receive up to a 40 percent Maine income tax credit for investments of anything up to $500,000 in a qualified company.

The program makes investment houses feel obligated to look at investing in Maine, said Clapp.

He gave Maine a “B-plus” for efforts to increase investment in the state, tops in the region. He scored Massachusetts at D-minus; New Hampshire, C-minus; Vermont, D-minus; and Rhode Island, B- minus.

The growth path Maine has chosen is slow but crucial, said Moore, the Portland-based investor. Silicon Valley took decades to develop into the economic engine it is today, he noted, and it all came from a critical mass of small companies exchanging energy, drawing capital and attention.

The people of Maine understand the need to invest public funds in start-ups, said Masthead’s Agnew, and they seem to have the patience Maine will need to sustain the programs.

“Every time they’ve had a chance to vote on that kind of long- term investment, they’ve supported it,” said Agnew. “It’s not a problem of will.”

To further develop where Maine’s going, the state might want to look at Albany, N.Y., he said.

The region is touting itself as a center of development in nanotechnology, a red-hot business area. As a result, the area is generating attention for itself, something Maine might want to consider. The state could create some hype on a smaller, more focused scale.

Clapp said that once buzz is generated and strength is added to the three legs of the stool – education, funding and frustrated engineers – “this is going to be a hot little area.”

Staff Writer Matt Wickenheiser can be contacted at 791- 6316 or at:

mwickenheiser@pressherald.com