June 26, 2019

Maddy Kennedy

Minnesota Gov. Tim Walz and other state lawmakers have reinstated a program that gives tax breaks to investors backing Minnesota startups.

The angel tax credit provides incentives to investors backing small businesses in Minnesota. It was (in general) popular among local startups, and when you look at the numbers it’s easy to see why.

Between 2010 and 2017, more than $420 million was invested in 855 Minnesota businesses through the state’s angel tax credit program, according to the Department of Employment and Economic Development. In 2017, about 48 percent of investors were non-Minnesotans whose investments made up about 53 percent of all investment that year.

What is the angel tax credit?
The angel tax credit provides a 25 percent credit to investors or investment funds that put money into startup companies focused on high technology, new proprietary technology or a new proprietary product, process or service in specific fields.

Managed by DEED, the program will give $10 million in credits for 2019 and $10 million for 2021. There will be no funding for the program in 2020. These figures are similar to what was set aside in the final years of the program. The state set aside $15 million for the tax credits in 2015 and 2016 and $10 million in 2017.

Who qualifies for it?
Just about any small business based in Minnesota – as long as they meet certain requirements. Employees must be paid wages of at least $45,063 annually, and student interns must be paid at least $12.69 an hour. Businesses are also required to provide employees with certain benefits.

Who’s investing through the program?
It seems to be a pretty even split between locals and out-of-state investors. In 2017, 388 Minnesotans invested $21,053,866 through the program, accounting for 47.3 percent of that year’s total investment, according to DEED. The same year, 364 non-Minnesotans invested $23,420,900 in local businesses, which is 52.7 percent of the total investors.

Where did it go?
The program lapsed in 2018 after state lawmakers decided not to fund it.

How do Minnesotans feel about it?
Local entrepreneurs and angels seem to generally be fans of the program. They say it encourages investment and attracts venture capitalists from outside the state who might otherwise invest in companies based in states that have better incentives. A handful of local organizations, including Medical Alley and the Minnesota High Tech Association, have been pushing for its return over the last two years.

Opponents of the program believe that it gives taxpayer money to wealthy individuals for investments that they would have made without offering subsidies.

Can my startup apply to receive funding?
Yes. Applications for the credit will open in September.