Minnesota’s Angel Tax Credit Returns
(Photo courtesy of the Great Northern Festival)

Minnesota’s Angel Tax Credit Returns

The program, which was revived by the Minnesota Legislature this year, allows investors to claim a tax credit on investments in startups.

Minnesota’s “angel tax credit” program for startup investors is back.

The Minnesota Department of Employment and Economic Development (DEED) has announced that it will begin accepting applications for the program on July 1. The state has pledged to provide $10 million in tax credits this year. Another $10 million has been authorized for 2021.

The angel tax credit program provides a 25 percent credit to investors who provide capital for tech-focused startups. DEED says the program is intended for startups focused on “high technology, new proprietary technology, or a new proprietary product, process, or service in specified fields.”

The program ended in 2017 due to “its sunset provision,” according to DEED.

But earlier this year, Minnesota Gov. Tim Walz pledged his support for the program.

Investors need to provide at least $10,000 to qualify for the credit. However, the minimum qualifying investment drops to $7,500 for startups owned by people of color, women, and veterans. Ditto for startups in Greater Minnesota.

Each year, half of the program’s funding is reserved for minority-, women-, and veteran-owned businesses, as well as businesses in outstate Minnesota.

On Thursday, DEED will host a Facebook Live event to provide more details on the program.

Since it began nine years ago, the angel tax credit program has provided more than $400 million to hundreds of startups, DEED officials say.

Peter Frosch, CEO of local economic development group Greater MSP, says angel tax credit programs are “absolutely essential” for some entrepreneurs. In his view, Minnesota could be doing much more to stimulate startup activity.

“Other states around the country are betting big on entrepreneurship and innovation,” Frosch says. “They’re stepping in to support their innovation ecosystems in significant and sustained ways.”

That can include similar tax credit programs, or grants for startups. Frosch cites Tennessee as one state that’s been active on the startup front.

The state’s commitment to startup activity has benefitted areas like Nashville and Chattanooga, he says.