The jobs bill — aka angel investor tax credit — was created earlier this year to stimulate startup growth in Minnesota by financially incentivising angels with a 25% income tax discount on qualifying early-stage business investments.
The measure appears to be ramping up before the close of the year when the clock resets and everyone is forced to re-qualify for 2011.
Passed into law on April 1, 2010, the bill allocates $60m in deductions over the next 5 years with $11m in available in 2010 & $12m/yr for 2011-2014. Both the investor(s) and the business must be certified through the Minnesota Department of Employment and Economic Development (DEED) prior to credit issuance — which brings us to the goodstuff.
According to DEED reports through 11/8, nineteen different cross-sector ventures have seized the opportunity to raise a collective $10m in funding under the legislation, awarding investors $2.5m in tax credits. Since the focus of our interests lies within the realm of High Tech/IT/SaaS/etc., here’s what we’ve picked up on:
In line with MOJO Minnesota’s goal of supporting early-stage technology companies, the group held its second official public gathering yesterday to focus specifically on Minnesota’s R&D tax credit – a “sleeper feature” included within the passage of H.F. No. 2695 earlier this year.
More educational than agitational in nature, the collective brought in guest Scott Schmidt, Principal at Black Line Group (and Founding Partner of ActiFi) to share his experiences around helping a variety of small to medium sized cross-sector companies benefit from the publicly-subsidized tax incentive.
Since April 1st, many entrepreneurs and investors alike have been asking all the right questions: what exactly does the passing of the Angel Tax Credit imply from the tax & accounting perspective? And what happens next? What does it really mean for Minnesota?
Join us for a behind the scenes perspective on the experiences from one Minnesota Angel Investor who has been advocating Minnesota Angel Tax Credits for the past 9 years. Learn about the nuances of the bill and the vision moving forward from of Minnesota’s most public Angel Investors, John Alexander. Mr. Alexander is Chairman and Founder of Twin Cities Angels and President at Business Development Advisors, Inc. (no website).
What it means on paper, technically: The Minnesota Department of Employment and Economic Development (DEED) has a solid primer on the parameters that entrepreneurs and investors need to know about HF 2695.3 (see: Small Business Investment Tax Credit Statute - section II). Those interested in taking advantage of Minnesota’s Angel Investor Tax Credit should consult with their respective counsel.
What’s next? From the sounds of things, DEED will have their official application site up and running between June 1st and August 1st. Qualifying as a business and/or an investor is the next step.
What does it really mean for Minnesota? Well, that’s the big question; ultimately, it’s up to both the entrepreneurs and those with a financial interest in the tech community to determine how they want to capitalize on this this win. Only time will tell where and to what extent the passage of this bill impacts the early stage markets (and so on). Stay tuned…
By passing the bill quickly in the legislative year and with such overwhelming bipartisan support in the face of a $2 billion budget gap, lawmakers have instantly established Minnesota as a credible place to innovate and embrace risk, investors and entrepreneurs say. That’s quite a departure from the traditional rap on Minnesota, a high tax state whose 19 Fortune 500 companies had made its residents and leaders complacent and timid.”
“The Minnesota House and Senate Monday overwhelmingly approved a five year, $50 million tax credit designed to spur early stage investment in high tech start-ups, including biotechnology and medical devices.
Minutes after the House passed a job bill, which included the angel credits, 112-20, the Senate followed suit 58-3. The lopsided vote capped an epic, seven year struggle to make Minnesota more competitive with neighboring states like Wisconsin, whose generous angel credits had lured homegrown start-ups across the border.”
According to sources familiar with the matter (MOJO MN), there may still be amendments, however here is the gist of it:
The Angel Investor Tax Credit has been discussed and debated for years at the Capitol, but is finally on its way to becoming law. The bill provides for a 25% tax credit for Angel Investment, to a maximum of $125,000 in tax credits per year/per investor. The bill budgets $11 million in credits for 2010, with $12 million in credits for 2011 through 2014. This tax credit is scheduled to sunset in 2015. The R&D tax credit increased from 5% to 10% of the first $2.5 million in R&D investment. In addition, the R&D credit is now expanded beyond “C” corporations to partnerships and “S” corporations. The R&D tax credit is refundable if a business’s tax liability is less than its credit due. The tax credits in the bill were offset by an elimination of a low-income motor fuels tax. This tax was part of the 2008 transportation bill containing the gas tax increase. The state has not yet issued any refunds under this program.
Pete Birkeland is Chief Financial Officer of Rain Source Capital. He is responsible for managing the financial reporting and accounting for RAIN Source Capital and coordinating the support functions to the RAIN Funds. He also works on due diligence tasks for for the various fund investments. Although Pete is not a VC, we consider him highly relevant to the topics at hand and use the acronym VC as a blanked label to describe those, like Rain Source, who operate in the private equity arena.
RAIN Source Capital is a multi-state network of RAIN funds that works with angel investors who are interested in supporting growing companies. They help bring together like-minded angel investors to form individual RAIN funds and then provides these funds with a process for due diligence, legal templates, management support, access to deal flow and other resources.
RAIN funds share expertise, deals and experience between and among their multi-state network to support growing companies throughout the areas they serve: 23 funds located in Minnesota, Iowa, North Dakota, South Dakota, Montana, Idaho, Washington, Oregon and other areas.
Starting off the conversation is a bit about the upcoming Small Business Investment Tax Credit/Angel Investment Tax Credit/Saltzman Bill. You can show your support for this bill on behalf of Minnesota Technology Startups through a form located here and also learn about the upcoming hearing on Feb 9th at the state capital.
JOINT COMMITTEE: TAXES AND BIOSCIENCE AND WORKFORCE DEVELOPMENT POLICY AND OVERSIGHT DIVISION
TUESDAY, February 9, 2010
10:30 AM
Room: 200 State Office Building – (100 Rev. Dr. Martin Luther King Jr. Blvd. Saint Paul, MN 55155)
Chairs: Rep. Ann Lenczewski, Rep. Tim Mahoney
Agenda: Angel Investor and other Venture Capital Investment Bills
Update I (1/28/10 – 10:30am) – Thanks to those who have indicated their support, so far we’ve received approx. 20 names…way to go! Please continue to spread the good word and don’t hesitate to ask any questions
We’ve been following this topic closely as a result of the need for more exposure and awareness amongst the startup community. This is something that impacts us all, directly or indirectly.
For a thorough background (and what’s at stake), we’ve aggregated a multitude of relevant links, a copy of the draft bill and a call to action from John Alexander (Chairman & Founder of Twin Cities Angels Funds) here.
If you feel that tax incentives can be helpful in generating early stage tech investments (as 29 other states do), speak up here.
JOINT COMMITTEE: TAXES AND BIOSCIENCE AND WORKFORCE DEVELOPMENT POLICY AND OVERSIGHT DIVISION
TUESDAY, February 9, 2010
10:30 AM
Room: 200 State Office Building – (100 Rev. Dr. Martin Luther King Jr. Blvd. Saint Paul, MN 55155)
Chairs: Rep. Ann Lenczewski, Rep. Tim Mahoney
Agenda: Angel Investor and other Venture Capital Investment Bills
“Angels are individual, sophisticated investors who put money into new and emerging businesses. This is good because most job growth comes from small enterprise. Sometimes, though, it’s a trick to get angel money to move, especially in a down economy. One way is through tax credits. Minnesota currently has no angel tax credit, but we have the best shot we’ve had in years in getting one passed. “
Also, here’s a message we recently received from John Alexander, Chairman and Founder of Twin Cities Angels Funds:
“CEO’s of early stage companies in Minnesota:
As you may have seen in the media, we are preparing for hearings on the Angel Tax Credit. I would like to have your support for the bill in two ways:
One, I’d like to get your name on a document supporting the bill, and
Two, if you are available, it would be helpful it you can attend one or more of the hearings.”
We will keep our audience appraised of more activity in this space, including bill text, petitions, and hearing details as their known. It’s understood that “IT” was excluded from the original text of the bill but has since been added to cover the sector “In it’s broadest terms”.
For more background on this issue, the aggregated links below appear in chronological order from oldest to newest:
The jobs bill — aka angel investor tax credit — was created earlier this year to stimulate startup growth in Minnesota by financially incentivising angels with a 25% income tax discount on qualifying early-stage business investments.
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