The Minnesota high-tech (medical devices, ICT, nanotechnology and cleantech) and the angel investment communities have lobbied the state government since 2001 for this tax credit as they have been proven effective in stimulating the start-up of new high-tech companies and job growth in other states.
Wisconsin and Ohio, in particular, have been successful in luring Minnesota-based entrepreneurs to their states to take advantage of investment stimulated by successful angel tax credit programs (as much as a 54% increase in angel investment in WI, as reported by panelist John Alexander, Chairman, Twin Cities Angels).
Key features of the Minnesota Angel Tax Credit include:
- A 25 percent tax credit for investments in small, emerging businesses.
- A maximum credit of $125,000 per person per year ($250,000 if married filing jointly).
- Program funding of $11 million in credits in 2010 and $12 million in credits annually from 2011 through 2014.
- A state refund if credits exceed the investor’s tax liability.
Investors, funds and businesses must be certified by the Minnesota Department of Employment and Economic Development (DEED) in order to participate in the program. The minimum qualifying investment is $10,000 (investors) and $30,000 (funds), and the maximum credit per business is $1 million.
Businesses Qualifying for Eligible Investments must be headquartered in Minnesota, with:
- A minimum 51 percent of employees and 51 percent of payroll in Minnesota;
- Fewer than 25 employees;
- Employees’ wages at least 175 percent of the poverty level (currently $18.55 per hour – does not apply to business’ executives, officers, board members, 20 percent-plus owners);
- An existence of less than 10 years;
- Proprietary technology being used to add value to a product, process or service in a qualified high-technology field;
- Research or development of a proprietary product, process, or service in a qualified high-technology field;
- Research, development, or production of a new proprietary technology for use in the fields of: agriculture, tourism, forestry, mining, manufacturing, or transportation.
Certification applications will be available on the DEED Web site in August 2010. More details about the program, including progress on implementation, are available at: www.PositivelyMinnesota.com/angelcredit
Implications for Canada: If the Minnesota angel tax credit has the intended result, there will be reinvigoration in start-up company financing in the state, particularly in high-tech industries such as medical devices and ICT, where Minnesota has traditional strength, as well as in emerging clean technologies and bio-industries.
Minnesota’s geography, diversified economy, highly educated workforce and self-perceived risk-adverse business culture share a lot in common with many parts of Canada and could offer a case study for Canadian regions seeking to accelerate entrepreneurial activity in innovation-intensive industries at home. A reinvigorated Minnesota start-up ecosystem may also provide new licensing and technology development partners for Canadian companies and research institutions that is more accessible than other high-tech regions in the United States.
While the refundable nature of the tax credit could attract Canadian angel capital away from Canada, the more likely scenario would be a limited increase in strategic cross-border investments. Increased angel activity in Minnesota should also increase the importance and profile of angel investor organizations like Twin Cities Angels and RAIN Source Capital as front doors for entrepreneurs seeking financing and sources of mentorship for new investors seeking to take advantage of the tax credit. In time, this could enhance the visibility and accessibility of the Minnesota angel community and create more opportunities for Canadian angel groups and start-ups to find Minnesota-based co-investors.
Reposted from National Angel Capital Organization
Throughout his career, both in Canada and the UK, Bryan J. Watson has been a champion of entrepreneurship as a vector for the commercialization of advanced technologies. Upon his return to Canada in 2004, Bryan established his venture development consulting practice to help emerging-growth companies overcome the barriers to success they face in the Canadian commercialization ecosystem. Visit Bryan’s blog and the National Angel Capital Organization.