Negotiators at the State Capitol once again are working on a long-sought-but-never-approved tax credit for angel investors.

A group representing early stage investors and the state's technology, life science and alternative energy industries is supporting a DFL senator's version of an angel investor tax-credit bill that will be introduced when the Legislature convenes next month.

Sen. Kathy Saltzman of Woodbury is crafting what she intends to be a stand-alone bill that would permit investors in fledgling technologies to take a state tax credit of up to 25 percent of their total investment, up to certain limits. In an interview Monday, Saltzman said the bill also has the tacit approval so far of Gov. Tim Pawlenty, who has been represented in discussions by Minnesota Revenue Commissioner Ward Einess.

The 2009 tax-credit bill for early-stage investors called for a 25 percent tax credit, not to exceed $10 million per year.

"I'm just sort of picking up the baton from others before me," Saltzman said. "We have defined the investment areas to include mining, transportation, tourism, timber, health sciences and [alternative] energy," she said. "It's up to a 25 percent tax credit and designed to incentivize people to invest in promising Minnesota technology. We don't want these young companies to leave because they can't find capital."

There have been several well-documented cases of promising Minnesota start-up operations moving to western Wisconsin to take advantage of Wisconsin law that permits angel investors there to claim a 25 percent tax credit over two years of up to $500,000 per investment. Wisconsin also has incentives for venture capital funds, which can earn a 25 percent credit over one year up to $2 million per investment.

Angel investors generally are affluent individuals who invest a few thousand to a few hundred thousand dollars in promising start-up companies with promising technologies. The hope is to help a company grow to a point where it can attract capital from traditional venture capitalists, banks or the public markets.

"We've got broad-based support with most health care and high-tech organizations and we hope to have final versions [of the bill] in front of them pretty quickly," said John Alexander, founder of Twin Cities Angels, which pools money and invests on behalf of individuals. "It's about our ability to be competitive with Wisconsin, Ohio, Texas and 27 other states [that use tax credits]. It's focused on technology of any sort where we create a competitive advantage. It's not consulting or commercial real estate. It's where you're fueling technology and jobs."

Sen. Bakk is a supporter

Saltzman said she's also consulting with DFL Sen. Tom Bakk, chairman of the Senate Tax Committee. Any such legislation would require his committee's approval.

Bakk, who is also a DFL candidate for governor, has said he favors the angel-investor tax credit to provide "much-needed capital to qualified, small developing businesses such as biotech, clean energy and green manufacturing -- that have a difficult time attracting capital to grow."

Rep. Ann Lenczewski, a Bloomington DFLer, is expected to offer competing legislation that would involve grants to promising technology companies. It's unclear how much support there is for that approach. House Speaker Margaret Anderson Kelliher has supported the tax-credit approach.

The goal of the angel tax-credit bill is to help keep the next Medtronics or St. Judes in Minnesota providing jobs for the long term.

Separately, there also are expected to be House and Senate bills that would provide temporary tax credits to small businesses that add employees. Such jobs-targeted tax credits essentially are wage supplements for up to six months. A similar program was used successfully in Minnesota during the emergence from the 1981-82 recession.

Companies of all types have struggled to raise money, partly because the recession forced some firms to pull back and potential investors to become more cautious. Small-business advocates say they either cannot keep up with demand for services or can't get loans from banks or expansion capital in order to invest in capital equipment and add jobs.

Some economists say such targeted government investments are cheaper in the long-term than extended unemployment compensation, and that they help jump-start economic activity.

"I'm for anything that helps us achieve larger investments or that incents the private sector to make larger investments in the growth sectors of the Minnesota economy," said Dan Carr, CEO of the Collaborative, a forum and organization that supports Minnesota economic expansion by matching local entrepreneurs with financiers. "I like that the [angel] tax credit would cover only up to 25 percent of the investment. The risk is still largely up to the private sector."

Neal St. Anthony • 612-673-7144 nstanthony@startribune.com