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Rochester’s RAEDI Launches New Southeast Minnesota Angel Investment Fund

Rochester’s RAEDI Launches New Southeast Minnesota Angel Investment Fund

Aims for $1M in startup funding despite ‘sunset’ of state’s angel tax credit.

The state of Minnesota may have recently lost its angel investor tax credit, but it is nevertheless gaining a new angel fund, thanks to the booming startup scene in and around Rochester—much of it driven by the Mayo Clinic.
 
The Southeast Minnesota Capital Fund was launched this week with an initial level of around $900,000, pooled from a group of 25 angel investors who were willing to participate despite a decision by the state Legislature this spring allowing the tax credit to “sunset” after leveraging a touted $377 million in business investment over seven years.
 
The new angel fund was created through the efforts of Rochester Area Economic Development Inc. (RAEDI), the local nonprofit devoted to growing new businesses in the city. It also operates the Mayo Clinic Business Accelerator startup incubator, devoted to spinning off Mayo innovations into new businesses that contribute to the city’s growth.
 
RAEDI’s Xavier Frigola, the accelerator’s director, is also serving as secretary/treasurer of the new Southeast Minnesota Capital Fund. He told TCB its angel backers were still willing to invest despite the bad timing of the tax credit’s “sunsetting.
 
The law had provided qualified investors in certified small businesses with a refundable income tax credit equal to 25 percent of their investments up to a maximum of $125,000 ($250,000 for married joint filers). 
 
“The investors doing this more because they believe in Rochester and the future of what’s happening here than for the tax credit, although the uncertainty about whether or not we’d have the credit delayed the start of our operation by about three months,” Frigola said.
 
“At one point I thought that not having the tax credit would kill the fund. Luckily, our investors are doing this for the community, as well. But I’m hoping the Legislature will consider reinstating the credit in the next session because this is something that’s really important for the future of the whole state.”
 
In negotiating what was a several-year process to establish the new angel fund, RAEDI got help from an established angel fund, Gopher Angels, and well as a key boost from a region-wide economic development organization called Journey to Growth Partnership. The latter nonprofit is connected with the Rochester Area Chamber of Commerce and aims to diversify the economy of the entire southeast Minnesota region, including Dodge, Fillmore, Freeborn, Goodhue, Houston, Mower, Olmsted, Steele, Wabasha and Winona counties.
 
Frigola said the Southeast Minnesota fund will remain open to new investors until the end of the year and is confident it will reach the $1 million mark in assets by then. Its investments will likely be in the $50,000-per-company range, with a realistic goal of funding stakes in a total of about 15 startups. Most, but not necessarily all, of the companies chosen will be in southeastern Minnesota. 
 
RAEDI will also be providing an education element for local investors, he added, many of whom are first-timers when it comes to backing startups (and their long timelines on realizing returns) but who have been inspired by the buzzing entrepreneurial scene in Rochester.
 
“One of the reasons this fund will be important is that it can provide a centralized place for local investors to get involved in the area, but who may not be familiar about how to do angel investing on their own,” he said. “With an angel group, they will now have a method to do that.”