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Third of Minnesota angel tax credits still available

Jeff Nelson

Jeff Nelson

One of the state’s most popular tax credit programs for young companies is struggling to clear its coffers this year after lawmakers imposed restrictions on who can cash in.

Halfway through the year, the Angel Tax Credit program has more than one-third of its $16 million pot available. Last year, the Minnesota Department of Employment and Economic Development dispersed its entire $12 million pool by early March before businesses drained an extra $3 million in a single day.

The shift follows state legislative tweaks that keep insiders from accessing the credits, which allow early-stage investors to recoup a portion of their buy-in to a given company. Also this year, lawmakers set aside $7.5 million for businesses owned by women or minorities, or based in greater Minnesota.

As of last week, most of the $6.1 million in remaining credits – $4.4 million – were in the first-of-its-kind pool for underserved groups, historically shut out from the program. Qualifying businesses have until Sept. 30 to capture that value before it funnels back into the main allocation.

An outreach campaign that stretched from the end of last year into the spring, including advertisements in publications geared toward targeted groups, hasn’t paid off. Over the past three months or so, DEED has only distributed about $500,000 from the specialized pool, according to agency figures.

As of last week, the general allocation contained just $1.7 million of the $8.5 million it had to start – a figure that’s dropping by about $100,000 a week as applications roll in and get approved, said Jeff Nelson, who manages the program for DEED.

But the slow-going run this year doesn’t necessarily mean women, minority and outstate entrepreneurs aren’t benefiting from the boost.

“That was one of the reasons that the Legislature set this up – things just happen a little more slowly in greater Minnesota in terms of the businesses knowing about the program and being able to line up investors,” he said. Frequently, the same goes for women and minority business owners

It’s tougher for entrepreneurs in greater Minnesota to connect with investors compared with their counterparts in the Twin Cities metro area, a cluster of innovation and funding.

“This kind of forward thinking, saying some of these dollars need to go to outlying areas, really helps leverage innovation throughout the state and not just in population-dense areas, which is often the trend,” said Lisa Herr, executive director of the 7 Rivers Alliance, which promotes economic development in southeast Minnesota, southwest Wisconsin and northeast Iowa.

In past years, without the specialized allocation, better-connected businesses and investors pounced on the credits right away, leaving nothing left for companies that weren’t prepared to act quickly.

“That was a problem in the past. In the metro area, everything was lined up and – boom – the money was gone,” Nelson said. “Just having the carve-out is allowing greater Minnesota folks and minority folks a little more time to get their ducks in a row.”

As the application window closes, Nelson expects an influx of credit requests from eligible companies and investors. He approved a request from greater Minnesota this week and is reviewing other applications.

Any funding left in the general pool at the end of the year will roll over for distribution in 2016. For now, Nelson said he’s “pretty positive” Minnesota companies and their investors will exhaust the remaining credits before then.

Next year, DEED will get a fresh $15 million for the program including another $7.5 million for the same targeted groups.

About Karlee Weinmann

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