2011 Angel Tax Credit Funds Likely to be Gone by Year’s End

Between January and Wednesday, $9 million of the nearly $16 million available in 2011 credits had been allocated to investors that have funneled money to Minnesota companies; the angel tax credit program coordinator thinks the entire allotment of state money will be gone by year's end.

Given the amount that's been doled out to investors during the first six months of 2011, Minnesota appears on track to use up all of the nearly $16 million available this year through its angel tax credit.

As of Wednesday, about $9 million in credits had been given to angel investors that have collectively funneled $36 million into 75 of the state's early-stage companies, according to program coordinator Jeff Nelson.

“At the rate we're going, I expect that we'll probably run out [of money] before the end of the year,” Nelson said.

Given that, his advice to companies and investors wanting to take advantage of the credit during this calendar year: “Just don't wait 'til the last two months.”

The state agency that oversees the angel tax credit program was closed-along with most others-from July 1 to 20 during the government shutdown. But Nelson returned to work on Thursday to a stack of paperwork from companies and investors wanting to participate in the program.

The tax credit is available to investors and investment funds that funnel money into start-ups that are less than 10 years old, have fewer than 25 employees, and have less than $4 million in previous equity investments. The businesses also must be headquartered in Minnesota and have at least 51 percent of their workers and their full payroll based within the state.

Companies and their investors both must receive approval, or certification, from the state in order for the investors to get the credit. So far this year, 139 companies, 308 investors, and 13 investment funds have been certified. (Most investors that get certified do receive the credit, but some companies apply for certification in the hopes of receiving an investment and don't actually secure one, according to Nelson.)

The tax credit program was signed into law on April 1, 2010, but didn't kick off until last July. During the last six months of 2010, 112 companies, 275 investors, and five investment funds were certified.

The credit spurred $28 million in funding for 67 Minnesota companies in 2010-and those 67 companies collectively created 47 jobs last year, according to a report that the Minnesota Department of Employment and Economic Development submitted to the Minnesota Legislature earlier this year.

But investors only collected $7 million in credits from the state last year-less than the $11 million that was available. Consequently, $4 million rolled over to 2011, boosting the total available to nearly $16 million this year.

Nelson attributes last year's program figures to the fact that people were still learning about the credit. With any new program, there's a “warm-up period where more and more people get educated about the program and its existence,” he explained. “Last year, the program was only half a year. This year, at the beginning of the year, people knew about it and were ready to go.”

The state will fund $12 million in credits annually through 2014, and credits cannot exceed $125,000 per person per year.

As awareness about the credit is growing, Nelson is focused on spreading the word throughout Greater Minnesota. Only six of the 67 companies that received an investment last year were outside of the Twin Cities metro area. He suspects that's not because outstate companies and investors are any less interested than other businesses.

Nelson will head to Grand Rapids next week to speak to elected officials involved in the Coalition of Greater Minnesota Cities and tell them about the benefits of the credit. The state is also collaborating with the Minnesota Angel Network-a public-private partnership that aims to help start-ups access funding-to encourage investments throughout the state. Among other things, the Angel Network educates companies about how to more effectively make their case to potential investors.