EDC sees development opportunities with new angel investor tax credit
WILLMAR -- Not long ago, the chance to bring in a new business slipped through the fingers of the Kandiyohi County and City of Willmar Economic Development Commission.
The reason? The county didn't have any "angel" investors -- private individuals with the wherewithal to bankroll a promising start-up business that doesn't qualify for more conventional financing.
EDC officials recognize there's a gap and that it has sometimes been a hindrance to local economic development and job creation.
"We've lost some opportunities because of it," admits Steve Renquist, executive director of the Economic Development Commission.
It's why EDC officials have been working for the past several months to develop a Kandiyohi County network of angel investors. A handful of meetings have already taken place, and a larger meeting for potential investors is planned in May.
Local officials believe there's interest; the most recent meeting drew 24 people.
Being able to offer this resource to prospective businesses, particularly in the emerging high-technology industry, would be "a significant asset" for economic development in Kandiyohi County, said Jean Spaulding, assistant director of the Economic Development Commission.
"Start-up capital is something that we don't have," she said. "That's where the angel funds would come in."
State legislators apparently agree, because on March 29 they passed a bill allowing a 25 percent refundable tax credit for individuals who make an equity investment in a qualifying high-tech business. It was signed into law April 1 by Minnesota Gov. Tim Pawlenty.
Supporters have worked for at least a decade to obtain an angel investor tax credit, said Spaulding, who was among those testifying on behalf of the bill last month at the state Capitol.
The legislation was backed by a number of key players in the state's technology industry, including LifeScience Alley and the BioBusiness Alliance.
The state has committed $11 million to the program this year and $12 million per year for 2011 through 2014 -- $59 million in all across five years.
Spaulding and Steve Renquist, executive director of the EDC, hope the new tax credit will be the final incentive that helps get a local investors' group off the ground.
The Minnesota Department of Employment and Economic Development is working on the details of how the tax credit program will be administered. Applications likely will become available some time this summer.
The program is aimed in particular at supporting small, newly emerging businesses in the high-technology industry, or ones that use new, proprietary technology.
It can be challenging for these types of businesses to obtain conventional funding, Spaulding said. Some are too new to have a financial track record, or might need financing to cover their early research and development phase.
These are the kinds of ventures, however, that Kandiyohi County is trying to attract to venues such as the MinnWest Technology Campus in Willmar and Willmar's newly expanded industrial park.
"High technology is a growth area for us," Spaulding said. "Capital and early-stage financing is critical with the types of projects we're looking at."
These projects aren't without risk. Under the new state jobs bill, individual angel investors who qualify for the tax credit must invest a minimum of $10,000 in a qualifying company. Groups need to invest at least $30,000. It might take years, if at all, for them to see any financial return.
Now that they're able to receive a tax credit, it should help to at least partially offset the risk, Spaulding said. "It makes it a more attractive business decision for them."
Renquist said he hopes it also will help make Minnesota more competitive with neighboring states that already offer similar tax credits.
"It levels the playing field with Wisconsin and South Dakota," he said. "Minnesota was losing projects because of more lucrative write-offs across the border."