Tax breaks for angels

Almost a year ago, a Minnesota company announced it would move to Wisconsin because of the tax policies of Minnesota which made it difficult to attract investment.

“We’re not getting the job done in Minnesota,” said VitalMedix CEO and president Jeff Williams told the Star Tribune at the time. “Angel investment in the Twin Cities has almost dried up. People are just sitting on their money. The past year has been the most difficult that I’ve ever seen in my career. It’s extremely difficult and frustrating.”

An “Angel investment” tax credit rewards investment in companies with tax breaks. Investing in a start-up company, especially in the high-tech world, is risky. The angel investor credit provides a cushion for the investor, its proponents argue.

Wisconsin has such a program. Minnesota doesn’t.

In December, VitalMedix made the move to Hudson. How’s it going for the firm in its new state? It’s not. A month ago it filed for bankruptcy.

Other companies, however, have been able to get the green in Wisconsin. Rapid Diagnostek, which moved from St. Paul to Hudson in 2008, recently received a $4 million investment.

The Minnesota Legislature this session has been debating whether to offer the tax credit to the investors and, if so, whether it would be paid for by removing tax credits to some low-income individuals.

The House is debating a bill this afternoon that includes the angel investment. You can watch the debate here.

3:39 p.m. – The House passed the bill 112-20.

  • bsimon

    Huh? Isn’t the prospect of making money enough?

    It seems to me that if the idea is good, it will attract investment. By offering a tax subsidy, it seems to me that the state would be encouraging riskier investments, by reducing the risk borne by the investor.

    Viewed in that way, the program could have the inverse of the desired outcome – by drawing money to marginal ideas that are more likely to fail. Put a different way, if we don’t want the gov’t picking winners and losers (i.e. interfering in the market), why would it be a good idea to subsidize investment in companies that cannot attract investors without the subsidy?

  • JackU

    @bsimon: You are using logic to analyze an issue that is not controlled by that discipline.

    The best analogy here is the lottery. Before Minnesota had a lottery there was one in Wisconsin. One of the arguments for bringing the lottery (and particularly PowerBall) to MN was that it would keep those dollars from going across the border. Particularly in places like Duluth, the Twin Cities and south eastern MN (Winona for sure, even Rochester if the payout was big enough) where it was a quick jaunt across the border to get your tickets.

  • sheldon mains

    But the governor doesn’t want to continue the Film Board–which has a proven record of bringing movie production to Minnesota? I guess asking for logic and consistency in our leaders is too much.