Venture is likely to spawn losses

I have just written to the governor, urging him to develop some business plans for the development of a sensible aquaculture business in Maine. My concern was that this huge opportunity for Maine might be lost forever if more thought was not applied to an intelligent start-up strategy. Every failed venture will suppress the opportunity for Maine, and will raise more questions in the general population’s mind.

I have recently reviewed Jorn Vad’s application to the Department of Marine Resources for a license to put 15 acres of pens in Penobscot Bay, off of Scott Island. I also heard DMR’s most thoughtful associate, John Sowles, speak at an informational meeting in Deer Isle in mid-August. He assured us that DMR had reviewed and accepted the application, including the financial plan.

As a retired senior vice president of one of the world’s largest management consulting firms, I have reviewed hundreds of business plans for new ventures to evaluate financing options. Having carefully analyzed Vad’s pro formas included in the application, I have concluded that the venture is fundamentally unsound, financially. I have not changed any of Vad’s numbers; I have only integrated his operating costs with his capital costs, which he did not do, and I eliminated the financing costs (interest) as one must first look at a venture without financing considerations to be sure the venture is financeable.

My results show:

. In contrast to Vad’s numbers showing a capital need of about $1 million, he will need some $2.8 million. He proposes to find (where?) $400,000 in equity leaving $2.4 million in debt. This produced a debt-equity ratio of about 85/15; very risky.

. On a cash-flow basis, if all goes according to plan, he will get his initial $2.8 million back at the end of the fifth year, not allowing for interest payments or money taken out of the venture. A lousy deal.

. No rational bank, venture capitalist or investor would take this risk, particularly as there are virtually no hard assets which are not floating on the ocean. If an investor is found, the interest rate will be very high, again making the feasibility of success even dimmer.

. Many of Vad’s numbers, which I have not altered, seem very

optimistic.

If this venture fails, which is highly likely, Maine will have a big black eye and future opportunities will be badly hurt. Further, there is no money (other than $5,000) set aside to properly close the venture if it were to fail. We all will be

left with the mess.

I believe it is in the best interest of Maine for it to perform feasibility studies on future aquaculture ventures and get advice from able financial people before approving leases. We can make the potential industry a success for Maine, or we can botch it at the start-up. We seem to be heading the wrong way.

D. Elliott Wilbur lives in Little

Deer Isle.