One state tax incentive for investment in startup companies is considered so rare and valuable that some investors are willing to camp out overnight to get first crack at applying for it.

The Maine Seed Capital Tax Credit program offers a state income tax credit of up to 50 percent on any qualifying investment in a Maine startup. Invest $100,000, get a tax credit of $50,000. Invest $1 million, get a tax credit of $500,000. The tax credit can be claimed over a period of four years.

No other tax incentive offered in the state does as much to reduce the risk of investing in a startup – but there’s a catch. Applications are accepted on a strictly first-come, first-served basis, and there is an annual cap on the program of $5 million in total tax credits issued.

Overseers of the program say they would like to change that. They plan to ask the incoming Legislature to triple the annual cap because of a recent surge in demand.

On Wednesday, the first day tax credit applications were accepted for 2019, the $5 million cap was likely reached within a matter of minutes, according to the investors waiting in line.

Shannon Kinney, founder and client success officer at Rockland-based Dream Local Digital, took her place in line outside the Finance Authority of Maine office in Augusta just after 4 a.m. Wednesday, and there were already three investors ahead of her.

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“Two people in front of me stayed overnight,” she said.

By the time the doors opened at 8 a.m., there were more than a dozen investors in the line, some with multiple applications in hand. Kinney said an informal survey of the group indicated that the $5 million cap would be reached before the queue was emptied.

“We all shared how much we were looking for, and there was more than $5 million before 8 a.m.,” she said. “So the last people (in line) still went through the process, but they would only get in if one of us in the front messed up our paperwork.”

No. 10 in line, individual investor Charles Mullen of Walpole, said he believes he just barely made it in before the cap was reached.

Investors lined up outside FAME’s office to apply for the Maine Seed Capital Tax Credit program, Wednesday, January 2, 2019.

Mullen was looking to receive the tax credit for investing in a Wiscasset startup called Peregrine Turbine Technologies that produces high-efficiency turbines for power generation and other uses.

Mullen said he met Peregrine’s CEO at a track meet in which both of their kids were participating, and he became intrigued with the what the company is doing.

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“It’s pretty exciting new technology,” he said. “They’re really hoping to actually be able to produce maybe a couple hundred jobs. If that’s the kind of results they get, then I think the (tax credit) program will be a success.”

The goal of the program is to spur venture capital investment in Maine startups and ultimately create more jobs in the state, according to the Finance Authority of Maine, also known as FAME.

“The idea is to get outside money into these companies,” FAME spokesman Bill Norbert said.

Maine typically lags behind most states when it comes to venture capital investment, according to PricewaterhouseCoopers and CB Insights’ quarterly MoneyTree reports. From 2010 to 2016, the amount of venture capital investment in Maine averaged about 0.1 percent of total investment in the U.S. in terms of both the number of deals and their total dollar value.

The Maine Seed Capital Tax Credit program has been in place for about 30 years, but investor interest in the program has surged recently. In 2017, the $5 million annual cap wasn’t reached until November of that year. In 2018, the cap was reached in March. This year, it appears the cap was met on the very first day.

The growth in applications indicates that investors have become increasingly bullish about Maine startups, said Chandler Jones, principal at Brunswick-based community development venture capital firm CEI Ventures.

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“It’s a sign of the strong economy that we’ve seen over the last few years,” Jones said. “There’s quite a bit of pent-up demand from last year, which I think was a really strong year just in the capital markets.”

Norbert said the tax credit program has a solid track record, having facilitated over $100 million in venture capital investment and the creation or retention of at least 7,300 jobs in Maine. Those figures are somewhat outdated and don’t even include results from the past five years, he said.

“They range from high-tech industries to traditional industries like farmers and fishermen,” Norbert said.

Charlie Emmons, FAME’s director of commercial lending, said demand for the tax credit is expected to be even stronger in 2020, because investors will have to wait an entire year for another chance to apply for it. He said FAME already has submitted proposed legislation that would dramatically increase the number of applications that could be approved next year.

“We’re suggesting that they raise the (annual) limit to $15 million,” Emmons said.

J. Craig Anderson can be contacted at 791-6390 or at:

canderson@pressherald.com

Twitter: @jcraiganderson