In spring of 2010, the Minnesota legislature passed a historic bill aimed at spurring early-stage investment in Minnesota startups through a 25% refundable tax credit for qualified investments in qualified companies.
With $60m budgeted over 5 years, the “Angel Investor Tax Credit” (AITC) allocated up to $11 million in credits for 2010, with $12 million in annual credits for 2011 through 2014, and a sunset scheduled Jan 1, 2015.
“We’ve passed the baton onto you,” Sen. Kathy Saltzman (D-Woodbury) said at the time, referring to the entrepreneurs and investors who rallied for the cause. And use it they did.
In the following 18 months, over 100 startups from across Minnesota, mostly tech , ran the well dry before 2011 was over. Many startups seeking to benefit were left waiting in line for 2012 calendar year to being.
“Looking at the run-rate from last year it seems like we’ll run out again by this summer,” said Twin Cities Angels Chairman John Alexander, an instrumental voice on the matter — both then and now. “If $12m annually yields $48m of investment, why not go to $20m / $80m,” he posits.
Based on the demand — and other takeaways gleaned so far — Rep. Keith Downey (R-Edina), introduced HF 1823 (Senate SF1774) in January, essentially a modification to the initial statute, addressing four key areas:
1. Increase the tax credit allotment from $12m annually to $20m annually.
2. Disclose more information about qualified companies, such as primary contacts.
3. Remove employee wage requirements currently mandated for startups to qualify
4. Address loopholes that could be designed to game the system
“The AITC has been favorably received by the investment and entrepreneurial community so far. Based on the data, I’d call it a success,” Downey said speaking towards the potential $8m annual increase in credits.
As of yesterday, Minnesota’s Department of Economic Development (DEED) reports that 22%, or $2.6m of this years $12m has been accounted for.
“Considering that approximately $5m was carried over from 2010 into 2011 and that the full $12m was used in 2011, the $20m annual mark is not overreaching,” securities attorney Michael Schley commented. “But there are skeptics to whether or not this proposed funding increase will clear,” he added.
Schley has been intimately involved with the tax credit, working with the state to craft the final legalese that is codified into statute; he also sat down with Downey last week to discuss the potential modifications of HF 1823.
“Expanding the annual allotment to $20m would be nice, but also require a budget amendment,” Downey explained. The bill was referred back to the tax committee in mid February and will be addressed over the coming weeks.
“If there’s anything that those entrepreneurs and investors in tech can do right now, it’s contact their local representative. Specifically, let those on the tax committee know what you think,” Downey concluded.