95-592 SMALL ENTERPRISE GROWTH BOARD

Chapter 701: SMALL ENTERPRISE GROWTH PROGRAM (Amendment 7)

Summary: This Rule establishes the procedures and standards applicable to the Small Enterprise Growth Program, a program that provides for the administration of one or more funds that invest in eligible small Maine-based businesses or qualifying venture funds demonstrating potential for high-growth and significant public benefit.

1. SECTION 1. DEFINITIONS
   1. A. Reference to Act Definitions. Certain terms used in this rule, which are defined in 10 M.R.S.A. §381 and following (the "Act"), shall have the meanings set forth in the Act, unless clearly specified otherwise or unless the context clearly indicates otherwise.

B. Defined Terms

1. 1. "Administrative contract" means a contract between the Board and a service provider to administer specified aspects of the program.
   1. 2. "Applicant" means an individual or entity which has submitted a complete application to the Board.
      1. 3. "Authority" means the Finance Authority of Maine, or as the context requires, the Chief Executive Officer and employees of the Authority.
      2. 4. "Board" means the Small Enterprise Growth Board.

5. [Repealed effective July 25, 2002]

6. [Repealed effective July 25, 2002]

1. 7. "Initial investment" means a disbursement from the SEGF of up to $500,000, which may be made in a single payment or in a series of payments to the qualifying small business or qualifying venture fund pursuant to one or more disbursement agreements.
   1. 8. "Investment agreement" means an agreement between the recipient and the Board setting out the terms on which the Board will invest in the recipient and on which the recipient will repay the Program Funds or otherwise provide a return to the Board on its investment.
      1. 9. "Managing director" means an individual or entity that has entered into an agreement with the Board to administer the program and the Program Funds, including but not limited to, the review and analysis of applications, meeting with applicants, providing analysis of the status of the Program Funds, publicizing the Program Funds, executing documents and taking other actions on behalf of the Board.
      2. 10. "Program" means the Small Enterprise Growth Program, which shall encompass administration of the Small Enterprise Growth Fund and any and all Side Funds.
      3. 11. “Program Funds” means the Small Enterprise Growth Fund and any and all Side Funds.
      4. 12. "Public benefit" means that the disbursement will advance and assist the people of the State of Maine.

13. "Qualifying small business" means

1. (A) For the purpose of an initial investment by the Board, a business which employs the full time equivalent of 50 or fewer individuals at the time of application or has gross sales not exceeding $5,000,000 within the most recent 12 months for which financial statements meeting the Board's requirements are available; or
   1. (B) For the purpose of a subsequent investment by the Board, a business that has previously received an investment from the Board and that, in the judgment of the Board, evidences continued potential for high growth.
      1. 14. “Qualifying venture fund” means a venture capital fund that is managed by an entity other than the board and that the board finds demonstrates the potential to contribute venture capital funding in a manner that promotes economic growth in the State.
      2. 15. "Recipient" means a qualified small business or qualifying venture fund in which the Board makes an investment from the Funds and includes a prospective recipient where the context requires, and also includes any related entity having 50% or greater common ownership or beneficial interest with the recipient or any individual or entity having a 50% or greater ownership or beneficial interest in the recipient.

16. "SEGF" means the Small Enterprise Growth Fund.

1. 17. “Side Fund(s)” means a fund or funds, created and administered by the Board, from sources other than monies appropriated to the SEGF (and earnings thereon) which co-invests alongside the SEGF, or makes independent investments in select qualifying small businesses or qualifying venture funds.
   1. 18. “Side Fund Investments” means investments in qualifying small businesses or qualifying venture funds by the Board from one or more Side Funds.
      1. 19. "Subsequent investment" means, an investment by the SEGF which, together with any initial investment, is in an amount which does not exceed ten percent (10%) of the capitalization of the SEGF from all appropriations received for application to the SEGF, plus any funds received from repayment, interest, royalties, equities or other interests in business enterprises, products or services to the extent the repayment, interest, royalties or equities or other interests are in excess of the amount initially invested in the recipient, as determined on the date of approval of the subsequent investment, which may be made in a single disbursement or a series of disbursements to the qualifying small business or qualifying venture fund.

SECTION 2. ADMINISTRATION

1. A. The Board has the power to approve investments to qualifying small businesses or qualifying venture funds from the Program Funds. The Board may not delegate the final authority to approve investments, but once having authorized a potential investment from the Program Funds within designated parameters approved by it, the Board may delegate to a subcommittee of the Board the authority to negotiate and agree to terms of the investment within those designated parameters.
   1. B. The Board may delegate to one or more subcommittees the authority to review applications. The subcommittee may be given the authority to deny applications for investments. The Board may determine in advance that such a denial will be final agency action, not subject to appeal to the full Board.
   2. C. The Board may create such other subcommittees as it may deem necessary for the administration of the Board's business.
   3. D. The Board may enter into administrative contracts with one or more individuals or entities to perform the administrative functions necessary to the efficient conduct of the program and the administration of the Program Funds. Without limitation, services contracted for may include development of rules, procedures, documentation, financial reporting, publicity, analysis and recommendations with respect to applications received. The contracts may provide compensation for services rendered and reasonable expenses.

      SECTION 3. SEGF ADMINISTRATION

   4. A. The Authority shall maintain and invest the cash balances of the SEGF at the direction of the Board and shall report regularly to the Board regarding the balance of the SEGF.
   5. B. Appropriations, interest on investments, interest on investments to recipients, principal repayments, grants, endowments and gifts will be added to the SEGF. The SEGF will be used to make investments to recipients and to pay costs and expenses associated with maintaining, servicing and administering the SEGF and the program.

      SECTION 3A. SIDE FUND ADMINISTRATION

   6. A. The Board may enter into agreements or contracts with third parties to create and fund Side Funds. Ownership interests in Side Funds may be allocated or issued by the Board in accordance with such agreements, and monies in the Side Funds, whether principal, interest, investment income, investment repayment, or profit, may be distributed by the Board to third parties in accordance w ith such agreements. Such agreements may also provide that the Board be entitled to receive and retain profits or other returns on investments by the Side Fund. Any amounts definitively earned by the Board in a Side Fund shall be transferred to the SEGF at such time as the Board may direct, but in no event later than the closing of such Side Fund.
   7. B. Monies for the creation or funding of Side Funds may come from any lawful source, including public entities and private individuals or entities, and may be structured as revolving or non-revolving funds, and all or a portion of such monies may be returned to the contributor or investor in accordance with the terms of the agreements governing the creation of such Side Funds.
   8. C. Interest on investments of Side Fund monies, interest on investments by Side Funds into Recipients, principal repayments, grants, endowments and gifts will be added to such Side Fund as directed by the Board. Such Side Funds may be used to make investments to Recipients and to pay costs and expenses associated with maintaining, servicing and administering the Side Funds and the program.
   9. D. The Board may charge and accept management fees, or carried interest, for management of the Fund or Side Funds, provided that in no event shall any such management fees be charged to or paid from monies appropriated by the state to the SEGF. The board may approve payment of management fees to a fund manager hired to manage a side fund or to a fund manager for a qualifying venture fund in which the board is an investor.
   10. E. The Authority shall maintain and invest any and all Side Funds for which it is given direction to do so by the Board and shall report regularly to the Board regarding the balance of such Side Funds.

SECTION 4. ELIGIBILITY

1. A qualifying venture fund or a qualifying small business may be eligible to receive financial assistance under the program. In order to be eligible for financial assistance, a qualifying venture fund must invest a portion of the money in companies based in Maine that employ fifty or fewer employees or have gross sales not exceeding $5,000,000 within the most recent twelve months for which financial statements are available.

   In order to be eligible for financial assistance, a qualifying small business must meet each of the criteria in A-C below:

A. Must be engaged in or involve at least one of the following:

1. Marine Sciences

2. Biotechnology

3. Manufacturing

1. 4. Export of goods or services to locations outside the State or activities that result in significant amounts of capital being imported into the State

5. Software development

6. Provision or development of environmental services or technologies

1. 7. Provision or development of financial or insurance products or services

8. Production of value-added goods from natural resources

1. 9. Other enterprises that the Board determines will further the purposes and intent of the program, including, but not limited to, retail sales, tourism and agricultural production.
   1. B. The qualifying small business must demonstrate that it has the potential for high growth and that it will provide public benefit.
   2. C. The qualifying small business must provide evidence of its need for financial assistance from the fund to realize its projected growth and achievement of public benefit.

      SECTION 5. APPLICATION PROCEDURE AND CONTENTS

   3. A. Prior to being considered for an investment from the Program Funds, a company seeking investment must supply, at a minimum, the following information:
      1. 1. A description of the applicant, which identifies the business of the applicant, including the legal form of the business entity.

2. A statement of how the investment will be used.

1. 3. The background and experience of all individuals essential to the applicant. (Resumes may be attached to fulfill this requirement.)

4. A description of the goal and/or opportunity, which inspired the applicant.

1. 5. A description of the current status of the applicant, including an assessment of the stage it is at in its effort to achieve its goal or opportunity.

6. A description of all previous investments received by the applicant.

7. An assessment of the current value of the applicant.

1. 8. An estimate of the amount of capital needed to achieve the goal or opportunity of the applicant.

9. A description of the competition of the applicant.

10. A statement of how the applicant will obtain the required matching funds.

1. 11. A description of the potential of the applicant for high-growth and public benefit.
   1. 12. The profit and loss statement, balance sheet and statement of cash flows for the most recent two years or such shorter time as the applicant has conducted the business.
      1. 13. The applicant's projected financial statements for the next three years, including a profit and loss statement, balance sheet, statement of cash flows and any other projections the Board requests.
      2. 14. A disclosure of any actions, suits, proceedings or investigations pending against or, to the knowledge of the applicant or the individuals managing the applicant, threatened against or affecting the applicant or the individuals managing the applicant.

      A-1 Prior to being considered for an investment from the Program Funds, a qualifying venture fund seeking investment must supply, at a minimum, the following information:

      1. 1. A description of the fund, including the legal form of the entity.
      2. 2. The background and experience of all individuals that manage the fund. (Resumes may be attached to fulfill this requirement.)

3. A description of the focus of the fund.

1. 4. A description of any current fund portfolio companies, and any identified investment targets of the fund.
   1. 5. A description of all previous investments received by the applicant, and the target amount of total fund investments sought.

6. A statement of how the investment will be used.

1. 7. A description of how the fund expects to promote economic development in the State.
   1. 8. The performance of the fund, including profit and loss statement, balance sheet and statement of cash flows, all since fund inception.
      1. 9. A disclosure of any actions, suits, proceedings or investigations pending against or, to the knowledge of the applicant or the individuals managing the applicant, threatened against or affecting the applicant or the individuals managing the applicant.
   2. B. The applicant shall provide such additional information related to the business or the fund as the Board may reasonably request.

SECTION 6. BOARD ACTION

1. A. Five (5) Board members shall constitute a quorum of the Board. If five (5) Board members are present at the beginning of any meeting, then a quorum exists for the transaction of the business. If any Board member(s) leaves a meeting at which a quorum was originally present, so that less than five (5) Board members remain, a quorum shall be deemed to continue to exist. Notwithstanding the foregoing, a majority of those present and voting is necessary for approval of an application or other action, and the affirmative vote of at least four (4) Board members is required to approve an investment.
   1. B. No Board member may participate in a vote on an application where that member has a direct or indirect pecuniary interest in the outcome of the vote. Every interest of a Board member in any matter before the Board must be disclosed to the Board.
   2. C. In cases where the Board approves an investment, the Board, an authorized subcommittee, or the Managing Director may issue a term sheet outlining the terms and conditions of the investment. In cases where the application for an investment from the Program Funds are denied, the Board shall issue (or cause to be issued) a letter of denial, which includes an explanation for the denial.

D. The Board may allow members to participate in a public proceeding using remote methods under the following conditions:  

1. 1.  After notice and hearing the Board has adopted a written policy governing the conditions upon which members and the public may participate in a public proceeding by remote methods;   
   1. 2. The policy adopted must provide members of the public a meaningful opportunity to attend by remote methods when members participate by remote methods, and reasonable accommodations may be provided when necessary to provide access to individuals with disabilities;  
   2. 3. If the Board allows or is required to provide an opportunity for public input during the proceeding, an effective means of communication between the members and the public must be provided;   
   3. 4. Notice of the proceeding must be provided in accordance with state law. When the public may attend by remote methods, the notice must include the means by which members of the public may access the proceeding using remote methods. The notice must also identify a location for members of the public to attend in person. The Board may limit public attendance at a proceeding solely to remote methods if there is an emergency or urgent situation that requires members to meet only by remote methods;
   4. 5. A member who participates in a public proceeding by remote methods is present for purposes of a quorum and voting;   
   5. 6. All votes taken during a public proceeding using remote methods must be taken by roll call vote that can be seen and heard if using video technology, and heard if using only audio technology, by the other members and the public; and
   6. 7. The Board must make all documents and other materials considered available, electronically or otherwise, to the public who attend by remote methods to the same extent customarily available to members of the public who attend the proceedings of the Board in person, as long as additional costs are not incurred by SEGF.

The policy adopted pursuant to this subsection applies to a board or committee that is within the jurisdiction of SEGF, unless the board or committee adopts its own policy.

1. SECTION 7. DELEGATION OF APPLICATION REVIEW TO SUBCOMMITTEE
   1. A. Affirmative action by the Board is necessary to delegate to a subcommittee authority to review applications or authority to negotiate and agree to terms of an approved investment within designated parameters set by the Board.
   2. B. Each subcommittee shall be composed of 1 or more members.
   3. C. Each decision of a subcommittee must be approved by a majority of all members of the subcommittee.

D. Subcommittees may meet and take action by means of teleconference.

1. SECTION 8. TERMS AND CONDITIONS OF INVESTMENTS
   1. A. Initial investments, subsequent investments, and Side Fund Investments shall be made in an amount which is reasonable as shown by materials submitted by the qualified small business or qualified venture fund.
   2. B. Investments from the Program Funds may be in a form determined by the Board in recognition of the degree of risk of the proposal. The investment agreement may require royalties or additional payments based on sales, net cash flow or other financial measures, or rights to equity in the enterprise in the form of debentures, warrants, stock ownership or similar rights.
   3. C. With respect to investments from the SEGF, the qualifying small business must provide the Board satisfactory evidence that it has obtained other cash funds in an amount at least equal to the investment. The matching cash may be in the form of debt or equity, but must be at risk in the qualifying small business for a term at least equal to the Board's investment, must be invested no later than the date of the Board's investment and may be invested prior to the Board's investment as approved by the Board. If the Board approves an investment made prior to the Board's investment as the matching investment, it must remain at risk in the recipient for at least as long as the Board's investment. Side Fund investments may, in the discretion of the Board, count as matching investments to investments from the SEGF. With respect to investments in qualifying venture funds, the board may direct pursuant to an agreement with such a fund that a portion of the money go to companies based in Maine that employ fifty or fewer employees or have gross sales not exceeding $5,000,000 within the most recent twelve months for which financial statements are available.
   4. D. The Board may make incremental investments to the recipient based on specific events or conditions established at the time of approval.
   5. E. The recipient will be required to report to the Board at least quarterly on each of the following performance measures:

1. Financial performance;

2. Job creation;

3. Technological progress;

4. Market progress; and

5. Any other measures the Board requires.

1. F. The recipient may not use the investment to make distributions to or for the benefit of an owner of the recipient or a related entity.
   1. G. No member, employee or agent of the Board may disclose to any person the contents of any business or marketing plan for any application, any financial statements or reports pertaining to any recipient, or any other records which may be confidential pursuant to 1 M.R.S.A. §401 and following and 10 M.R.S.A. §391 or any successor or similar provisions.

      SECTION 9. FEES AND OTHER CHARGES

A. [Repealed Effective October 1, 1999]

1. The Board may require the recipient to be responsible for costs and expenses of closing, administering and collecting on the investment.
   1. SECTION 10. ADVISORY RULINGS

   The Board is authorized to issue nonbonding advisory rulings as to the applicability of the program or the Board's rules to the applicant. Requests for advisory rulings must be in writing and must specifically identify the section or provision of the statute or rule on which the ruling is sought. The Board may decline to issue any ruling if the request is not sufficiently specific, is not accompanied by adequate information, does not adequately identify the applicant or the purpose for which the ruling is sought, or if the Board determines that issuance of a ruling would not assist the applicant or would be contrary to the purposes of the program. All rulings shall be in writing. Rulings shall not be binding upon the Board. The Board may charge an applicant for a ruling the Board's actual, out-of-pocket costs and expenses, if any, in preparing any ruling.

   1. SECTION 11. HEARING PROCEDURES

   In any case, where applicable law or rule requires the Board to conduct a hearing, the hearing shall be conducted substantially as follows:

   1. A. The proponent shall make a statement in support of its position, addressing the findings required to be made by the Board in considering the application. The Board may ask questions of the applicant. The Board may allow others to ask questions of the proponent through the chair.
   2. B. Opponents shall be given an opportunity to state the basis of their opposition to the matter before the Board.
   3. C. The proponent shall be given an opportunity to respond to the opposition presented.
   4. D. The Board may require additional information, and may continue the hearing to a later date or specify a period within which it will accept further evidence, but shall not be obligated to do so.

   The Board may, in its discretion, retain a court reporter or otherwise make a record of the hearing, and the proponent shall be responsible for any costs and expenses of making the record.

BASIS STATEMENT: This Amendment 7 makes changes to the rule to address changes in the program statute made by PL 2021, Ch. 502. Primarily, the rule amendment adds the ability of the Board to invest in qualifying venture funds, in addition to qualifying businesses, and establishes the terms and conditions of such fund investments. The rule amendment also makes a limited number of technical changes to the Rule to address changes in the Board’s operations, including adding the Board’s remote meeting policy requirements to comply with applicable law. No comments were received from the public during the comment period.

STATUTORY AUTHORITY: 10 M.R.S.A. §385

EFFECTIVE DATE:

June 14, 1997

AMENDED:

November 2, 1998 (Amendment 1) - Section VI

1. October 1, 1999 (Amendment 2) - changes to Sections 1.B.5., 1.B.6, 1.B.10, 3.B, 4.C., 5.A. 1-14, including the addition of a new Section 5.A.13, and the renaming of the prior 5.A.13 to 5.A.14, 5.B., 8.A., 8.B., 8.C., 8.D., 8.E., 8.F., 8.G.,9.A. and 9.B.

NON-SUBSTANTIVE CHANGE:

January 17, 2002 - moved from umbrella-unit number 94-457 to 95-592

AMENDED:

1. July 25, 2002 (Amendment 3) - the addition of Sections 1.B.7A., 1B.7B., 1.B.7C.,1.B.11., 1.B.12., changes to Sections 1.B.8., 1.B.10., 2.A., 2.B., 2.C., 3.B., 4., 5.A., 5.A.2., 5.A.12., 5.A.13, 6.A., 6.C., 8., 8.A., 8.B., 8.D., 8.E., 8.F., 9., and the deletion of Sections 1.B.5, 1.B.6.
   1. December 10, 2003 (Amendment 4), filing 2003-463 - Section 1.B.10.(A).

      NON-SUBSTANTIVE CORRECTION:

      February 18, 2004 - capitalization of "Board" on page 2

      AMENDED:

      November 15, 2008 (Amendment 5)

      September 7, 2010 (Amendment 6), filing 2010-388. Added Section 3A and other conforming changes.

      August 11, 2024 (Amendment 7), filing 2024-175.Incorporates legislative changes pursuant to P.L. 2021, Chapter 502 (LD 1800), including addition of -qualifying funds as permitted investments, and makes other changes to improve program administration.

      APAO WORD VERSION CONVERSION (IF NEEDED) AND ACCESSIBILITY CHECK: July 17, 2025