Gov. Tim Walz has proposed $7 million for the on-and-off Minnesota Angel Tax Credit next fiscal year.

It should go back to $10 million with a legislative commitment to fund it for five years.

Even at that level, it's a pittance in a two-year budget that will top $50 billion.

The Angel Tax Credit gives investors in young, private firms a tax break of 25% on investments of up to $125,000 per person or $250,000 for a married couple.

The credits should be financed not by the general fund but a tax linked to capital gains pocketed by institutional investors, traders and investment bankers.

And the Legislature should make a modest, long-term commitment to the credit. It has faced periodic uncertainty, which has discouraged promising companies and investors. The credit was omitted from the state budget in 2018 and 2020.

Minnesota firms attracted a record $1.9 billion in venture capital in 2020. However, most of that money fuels large, late-stage concerns that eventually go public or sell to large-industry consolidators.

There is a growth-capital shortage, according to studies and anecdotal evidence, particularly for small businesses, including those launched by women and minorities. They tend to have fewer rich uncles, friends or parents staking them and fewer ties to a traditional banking network.

Over time, the tax credit has been refined, including up to 50% reserved for businesses owned by veterans, women and people of color. Eligible businesses must be developing or use a proprietary technology in fields from IT to transportation, agriculture or mining.

In 2019, 72 certified small businesses received nearly $40 million in investment proceeds (up to $250,000 from married couples) in return for $9.7 million in credits against taxes.

"It's needed," said Michelle Tran Maryns, owner of WeSparkle, a maker of software that does scheduling, customer support and marketing for small businesses.

Tran Maryns raised $50,000 in 2019 through a network of angel investors and $30,000 as a winner of the Minnesota Cup entrepreneur sweepstakes.

"The business is progressing," she said. "2020 was difficult for personal services with the pandemic."

Women are the fastest-growing segment of entrepreneurs but they have less capital and lower revenue.

Only 63 of the 481 businesses that benefited from the Angel Tax Credit have closed, according to a 2020 report to the Legislature. That's low. Meanwhile, the 418 surviving firms reported 2,565 workers.

The amount spent on the tax credit has ranged from $10 million to $15 million. The Minnesota program also lets small venture funds participate under certain conditions. And it attracts investment from out of state.

"I think it's imperative for the tax credit to be a consistent source of funding," said CEO Cathy Connett of Sofia Fund, investor in women-run businesses. "Going through this every two years … sends the wrong signal.

"This credit incentivizes small-business formation. Companies at this 'feeder stage' are starving for money. This money also attracts angels and entrepreneurs into our market. And there are angel investors who would invest more … $75,000 to $100,000."

The average investment in 2019 was $79,000, according to the Minnesota Department of Employment and Economic Development, or DEED.

The supporter-partners transcend political parties, geography and outfits such as Minntech, the state's technology association, and Medical Alley, which brings together local innovators in medical technology. Other backers are Gopher Angels and the University of Minnesota Venture Center.

The Office of the Advocate for Small Business Capital Formation of the SEC recently reported that up to 40% of small businesses shuttered or failed during the pandemic, including nearly a quarter across Minnesota.

Small-growth businesses are also employment engines. And the jobs created by Minnesota angel companies, who employ up to 25 people, averaged about $20-plus an hour in 2019.

The argument against the Angel Tax Credit program is that government shouldn't subsidize business. But that argument can also be had over billionaire-owned sports teams who play in publicly financed stadiums, energy companies, real estate owners, developers and many others who benefit from tax breaks.

DEED Commissioner Steve Grove, whose dad owned a small business in Northfield, is pressing renewal of the Angel Tax Credit program. We need to reverse the COVID recession this year.

A predictable angel tax credit is a small but significant tool that should be in the economic-growth tool belt.