$60m Over Five Years, Minnesota’s Angel Tax Credit ROI In Question



By J. Patrick Coolican, Star Tribune

“The angel investment tax credit, which is a big break for investors who put money in start-up companies, created 579 jobs between its 2010 inception and 2014. The cost to Minnesota taxpayers during that time: $60 million, or more than $100,000 per job, according to a 2015 report by the agency that administers the program.”

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  • Zach Robins

    Curious how the tech community views this trade-off. I have worked with companies who consider this program vital to their capital raise. But is it worth it at a cost of $100,000 per job created? Mind you $60M over four years is a nominal spend in the whole scheme of our budget. Should this program be expanded, limited to state resident investors, or left untouched?

    • http://tech.mn Jeff Pesek

      how do YOU view the tradeoff?

      • Zach Robins

        A program of this size is a tool (amongst others) to spur economic growth in an otherwise challenging environment (geographically). Is it the smartest use of capital? Possibly not. But government spending could be the topic of a much much larger expose. Does AITC help fund companies that may otherwise not be attractive to investors? Perhaps. But, I don’t know if that is such a negative, as not every company can be expected to return 10x and a large chunk of our businesses are lifestyle in nature, yet employ many. Ultimately, it really depends on the goals of the program, which I can’t speak to.

        Personally, I would like to see AITC expanded to encourage more investment from non-accredited investors. In my opinion angels shouldn’t need the encouragement of the state to invest here, though it certainly helps. Right now, AITC only allows for non-accrediteds via MN SCOR offerings and MN’s limited offering exemption. if this program could increase investment interest from those sitting on the sidelines by incorporating offering types such as the SEC’s new Regulation Crowdfunding, as well as Reg A+ and MNvest, more companies could potentially get funded, in turn creating more “smart investors” per Al’s point above.

        One last comment – the latest money tree numbers show Midwest issuers pulling in 3% of VC with MN at .35%. We are a mere blip on the radar. If this program can, as Al notes above, help in some way to produce a single (dare I say) unicorn, then obviously this will pay for itself over and over.

        • http://twitter.com/casey__allen Casey Allen

          Just had to drop the U word, didn’t you Zach? =)

          • Zach Robins

            Haha. We gotta join the club!

    • http://twitter.com/casey__allen Casey Allen

      Except the trade off is asymmetrical. Perception-wise the startups get something like a 10,000-1 trade off so of course some startups think it’s a wonderful idea. Skewed non-tech. Skewed non-urban. Skewed-from 1st time angels.

      More nuanced, startups raising dumb money will be tempted to think of the ATC as causational to their fundraising success. Startups that raise smart money know it’s completely irrelevant and that it played zero role. It’s a spectrum, not binary, but holds strongly true at both ends. Anecdotal.

      Even in the tech community, there is nothing approaching a consensus about whether it “should” continue or not although it should be noted job / startup creation is politically tough to kill once it already has momentum thus likely a moot point.

    • Al Baker

      Untouched, and here’s why: It’s a long-term investment, and dumb money needs time to learn.

      This is a long-term investment to create a more diversified corporate climate in Minnesota (Someone recently shared the stat that half of MN’s F500 companies were started before World War I). It is one of many tactics that our legislators are employing to create jobs, and shouldn’t be dismissed based on one statistic, which will become irrelevant once 1 or more of these investments goes on to create a boat load of new jobs.

      The rationale of whether or not ‘smart’ funds or angel investors will buy in is fairly marginal in my mind. This credit has enticed some of our investors, and others that I know in other deals, to become first, second, or third time angels! To become a smart angel it takes a lot of practice and the ability to deploy multiple investments in order to diversify your risk. Our government is helping alleviate risk and encouraging more ‘dumb’ money to become ‘smart’ money.

      There are many ways we should be fostering a stronger business environment and this tax credit is one that will help bear that fruit.