from Digital and Cyberspace Policy Program and Net Politics

Can the “Maine Model” Bring the Innovation Economy to the Rest of America?

David and Barbara Roux
David and Barbara Roux Derek Davis/Portland Portland Press Herald

The opening of Northeastern University's Roux Institute in Portland, Maine is a crucial first step in bringing the innovation economy to states that have historically been overlooked by venture capital. In addition to centers that cultivate tech talent, these states also need high levels of capital to fund the fledgling companies that employ graduates.  

February 10, 2020

David and Barbara Roux
David and Barbara Roux Derek Davis/Portland Portland Press Herald
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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

Two weeks ago, Northeastern University announced the launch of the Roux Institute in Portland, Maine. Backed by a $100 million gift from Barbara and David Roux, the institute will bring graduate-level programs in life sciences, data science, and digital engineering to Portland. This was big news for Maine and also received coverage from the New York Times because the institute is premised on the idea that the innovation economy can be brought to parts of the United States that it has thus far passed over.

David Roux, a native of Maine who made his fortune as a founder of the private equity firm Silver Lake, said that he made the investment to bring the innovation economy to his home state and create the “Maine Model” for how other states that are not home to Silicon Valley, San Francisco, Seattle, New York or Boston can do the same. As a resident of Portland and a research staff member at Northeastern, I have a vested interest in its success.

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In his remarks, Roux listed three factors that would be necessary for the institute to succeed: a credibly capable, highly entrepreneurial education institution; a set of highly motivated corporate partners; and “a big pile of money.” The recruitment of Northeastern to Portland, the support of ten local partner companies that have signed on to the initiative, and the funding the Roux family have checked all of those boxes.

For the institute to have the transformative effect on Maine’s economy that Roux envisions, fixing the talent problem alone is necessary but not sufficient. Bringing the innovation economy to Maine will require addressing the lack of funding for the startup ecosystem.

Simply put, Venture Capital (VC) firms don’t invest outside of a handful of cities. There are exceptions to this rule, like Steve Case’s Revolution Fund, but my experience with the local Portland tech community suggests that the pipeline of dollars that fuel the innovation economy does not have a terminal in Portland, Maine.

Due to a lack of investment capital, companies in Maine are pushed toward profitability too early, prioritizing sales over product development, while their competitors in major tech hubs are focused on building the best product they can. The Boston VC community can’t be bothered to trek this far north. Entrepreneurs with deep ties to Maine reject the idea of founding businesses here because investors demand Silicon Valley or Acela Corridor offices.

As someone from away, I’ve watched companies on the west coast do everything short of lighting money on fire as they burn through tens of millions of dollars of VC funding (I’m thinking in particular of a company with zero revenue that hired a full-time sommelier). I’ve seen slideware garner $20 million in investment.

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Meanwhile, total VC investment in Maine reached $28 million in 2018, according to data from Pitchbook, placing it in the bottom fifth of all states. For perspective, with $77 billion, California received well more than all other states combined. Together with New York and Massachusetts, 80 percent of venture funding went to just these three states.

According to data from Crunchbase, in the last decade only fifty-two businesses in the state received VC investment, with a median amount of about $500,000 injection per round. There are exceptions, like Vets First Choice and a handful of life sciences companies that have received investments above $10 million, but these success stories have not opened up the funding taps for other businesses. Maine businesses are often left to rely on the state-funded Maine Venture Fund (MVF), which has only been provided the resources to invest $20 million over the fund’s 20 year existence. In 2017, the last year for which figures are available, MVF was only able to invest $340,000 in two new companies, and total investment reached $1.1 million.

More should not be asked of the Roux family, who have done their part. There are other members of the investor class who can make a difference in the state. Whether it is through an infusion of cash to MVF, or a collection of family offices that open up outposts in Portland, creating what David Roux dubbed the “Maine Model” will actually require two giant piles of cash: one for the institute and one to create the companies where Roux graduates will work.

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