Minnesota’s “angel tax credit” program for startup investors is back after a year off.
The program provides a 25 percent tax credit – a taxpayer-funded subsidy – to investors who provide a minimum of $10,000 to a startup business. The minimum qualifying investment drops to $7,500 for startups owned by minorities, women and veterans.
The state has pledged to provide $10 million in tax credits in 2019 and another $10 million for 2021.
Half of the program’s funding is reserved for minority-, women-, and veteran-owned businesses, as well as businesses from outside of Minnesota.
Most small Minnesota-based businesses are eligible to apply contingent on certain requirements. Employees must be paid at least $45,063 annually, and student interns must earn a minimum of $12.69 an hour, and both must be given certain benefits.
The program lapsed in 2017 after state lawmakers decided not to fund it.
Earlier this year, Minnesota Gov. Tim Walz said he supported the initiative to kickstart Minnesota’s startup ecosystem through no capital barriers and low expenses compared to other tech hubs.
“Our state has a long history of innovation,” Walz said in a statement. “By directing capital to the small businesses and startups that can use it best, we are creating the next generation of successful innovators based right here in Minnesota.”
Minnesota houses 19 Fortune 500 companies and holds The Minnesota Cup, in which over 1,500 startups compete for seed funding.
Stem cell-based research and drug screening company StemoniX, who took home the 12th annual Cup in the Life Science/Health IT category, used the Angel Tax Credit program.
StemoniX was awarded top honors at the Cup for its potential to revolutionize the production, growth and manufacturing of human heart and brain cells.
Program supporters say it encourages out-of-state investment that might flow elsewhere and funds young, cash-strapped businesses with big ideas to forge the future.
"When we invest in startups and small businesses, we grow employment, we grow our economy and we lay the groundwork for a future in which Minnesota is a national leader in the innovation sector,” said DEED Commissioner Steve Grove. “We think that startups of today are the Big Fortune 500 companies of tomorrow.”
From 2010-17, people invested more than $420 million in 855 Minnesota businesses through the angel tax credit program, according to DEED.
A DEED report shows businesses that received investment from the program created 1,533 direct jobs between 2010-17. That’s a total $420 million in private investment during that period with public cost topping $100 million.
Program critics argue it hands out taxpayer money to wealthy individuals for risky investments they would have made without the subsidy.
DEED officials say the angel tax credit program has provided more than $400 million to hundreds of startups in its nine-year history.
Sezzle was one Minnesota tech startups that benefited from the Angel Tax Credit in 2016. This company created a digital wallet that consumers can use to pay in interest-free installments.
“If you buy something for $200 online, we split it up into four $50 payments split up over 6 weeks,” Sezzle CEO Charlie Youakim, told WCCO CBS Minnesota.
Youakim said he harnessed a $1.8 million investment, half of which was the Angel Tax Credit, to grow his company from 2016 into a bigger office space in the North Loop.