Ernest Grumbles III

Ernest Grumbles III is an IP (intellectual property) and business development attorney at the Minneapolis firm Adams Monahan, where he works with entrepreneurs and early stage, tech-oriented enterprise. He is also Co-Founder of MOJO Minnesota, a collective supporting entrepreneurs and promoting innovation policy and community in Minnesota. He enjoys fresh air and lots of caffeine and is constantly trying new things (instead of sleeping). He may be reached at: egrumbles@adamsmonahan.com.

5 Reasons We Need the Angel Investment Tax Credit in Minnesota

Posted by: Ernest Grumbles III under Business trends, Politics Updated: January 21, 2010 - 10:26 PM

Angels are individual, sophisticated investors who put money into new and emerging businesses. This is good because most job growth comes from small enterprise.  Sometimes, though, it’s a trick to get angel money to move, especially in a down economy. One way is through tax credits. Minnesota currently has no angel tax credit, but we have the best shot we’ve had in years in getting one passed. 

In fact, both parties and Governor Pawlenty are in favor of the angel tax credit.  In the state legislature, Sen. Kathy Saltzman and Rep. Jim Davnie are supporting angel tax credits.  Meanwhile, Rep. Ann Lenczewski is working to address the issue with legislation that provides for grants in lieu of tax credits (this bill, HF2580, is already filed in the House).  For the Pawlenty administration, Minnesota Revenue Commissioner Ward Einess is currently leading the charge.
 
Here are five good reasons to hope these efforts succeed:
 
(1) Credits move money - available risk capital for new ventures has dramatically shrunk over the last 18 months.  Tax credits are a way to incentivize the movement of risk capital.  No available risk capital = new enterprises dying before they're born (or shortly thereafter).
 
(2) Angels provide expertise - getting a sophisticated investor connected to a startup is a big leg up for the startup.  You're getting $ and brainpower.
 
(3) Angel money is important - not all companies can be bootstrapped or financed from friends and family.  Banks are in lockdown.  VC's are typically above $1M in investments.  So we need angels for the critical $50K-$500K often needed for critical company growth.
 
(4) Money follows money - angels often follow fellow angels when making investment decisions - let's grease the pipeline.
 
(5) At least 18 other states have angel tax credits (source: National Governors Association 2008 Report: http://www.nga.org/Files/pdf/0802ANGELINVESTMENT.PDF), including North Dakota, Iowa and Wisconsin. Minnesota has lost businesses because of it (VitalMedix; Rapid Diagnostek).  See Tom Lee's StarTribune report on Wisconsin's vigorous efforts to boost investor capital and new enterprise, especially in biotech: http://www.startribune.com/business/61513902.html
 
Cross your fingers. With any luck, Minnesota will have a winter gift for budding enterprise in the state.  Let's get it done.
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