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Minnesota report details impact of angel-investment tax credits; tweaks to program considered

by Laura Tomaka ~ May 2012 ~ Stateline Midwest »
In an effort to spur job growth, states have increasingly focused on encouraging angel investment in young, entrepreneurial firms that hold the promise of high growth and high profits in emerging business sectors.
Last year, about 100 businesses in Minnesota benefited from the state’s Angel Tax Credit Program, which lawmakers passed in 2010. Through the program, nearly $16 million in credits were issued to investors who put about $64 million into early-stage tech companies in 2011, according to a report by the Minnesota Department of Employment and Economic Development.
One goal of the program is to help the state compete for high-tech, high-growth businesses with neighboring states — particularly Wisconsin, which has had a similar tax credit since 2005. The Minnesota initiative gives “angel” investors a 25 percent tax credit for funding high-tech start-up firms with fewer than 25 employees.
Since the program’s inception, the report states, 162 jobs have been created by Minnesota businesses that raised money from investors receiving the tax credit. Medical device and equipment firms and software businesses topped the list of sectors benefiting from the credit.
Some lawmakers, however, think more can be done to make sure those investments are better distributed throughout Minnesota. According to the state report, 90 percent of the businesses (which received 87 percent of the investments) were located in the seven-county Twin Cities metro area.
In April, the Legislature was considering a bill that would encourage more investment throughout the state. SF 2355 would increase the tax credit from 25 percent to 40 percent for those who invest in businesses in greater Minnesota — areas outside the Twin Cities metro region.
“I know first-hand from the great businesses we have in Olmsted County that the greater Minnesota community is ripe with innovative, entrepreneurial ideas. We can bolster those job creators’ efforts by making it easier for them to secure capital from investors,” says Republican Sen. Carla Nelson, sponsor of the bill. “Jobs are our number one priority this legislative session — this bill is a step in the right direction and contributes to the economic prosperity of our statewide community.”
Minnesota lawmakers were also considering other measures related to the state’s angel investment tax
credit and venture capital.
SF 2290 would require that more information be disclosed about the companies receiving investments, such as contact information and the type of business. It would also restrict investors from eligibility if the company goes public within 180 days of receiving the money.
HF 1823 would create a $70 million program providing tax credits to insurance companies that invest in state-certified venture-capital funds. Those funds would then make cash investments in Minnesota businesses.

 

Article written by Laura Tomaka, CSG Midwest staff liaison to the Midwestern Legislative Conference Economic Development Committee. The committee’s co-chairs are Rep. Ted Celeste of Ohio and Sen. Mike Vehle of South Dakota.