Tuesday, April 23, 2013

Minnesota Angel Tax Credit Update

If you saw my last blog post, you know that I’m a fan of the Minneapolis/St. Paul Business Journal.  I recently saw another article in that paper that I thought would be interesting to readers of this blog.

The article is actually a summary of the 2012 Annual Report for the Minnesota Angel Tax Credit Program prepared by the Minnesota Department of Economic Development (DEED).  Here is a link to the actual report.

I found a few things in the report interesting.  First, it notes that 117 different companies received more than $46.1 million of investments, resulting in $11.4 million of angel tax credits being issued.  In 2011, there were fewer companies receiving qualifying investments (113), but the amount of capital raised through qualifying investment was larger ($63.1 million) and more angel tax credits were issued ($15.8 million).  Of course, in 2011 DEED had more tax credits available to issue than it did in 2012.  So, the decline in the number of tax credits issued in 2012 is not a sign that the Angel Tax Credit Program is waning in interest.  Rather it’s a reflection of the lower number of tax credits available in 2012.  Indeed, the fact that more companies received qualifying investments in 2012 than 2011 suggests that the Angel Tax Credit Program is gaining in popularity and has better recognition among Minnesota’s entrepreneurial community.  

As further evidence of the increasing popularity of the Angel Tax Credit Program, DEED’s website indicates that, as of April 17, 2013, $7.5 million of this year’s $12.7 million of tax credits available for allocation have already been issued, and only $5.2 remain available for issuance.  So, if you were planning to utilize the Angel Tax Credit as part of your capital raising strategy for 2013, you had better begin that process now.

Another interesting thing is the concentration of investments by sector.  Software received the largest amount of eligible investments, at $14.34 million, followed by medical device ($11.67 million) and biotechnology ($5.98 million).  The number of clean technology companies receiving qualifying investments in 2012 (7) was down from 2011 (11), and the amount of qualifying investments made in clean technology companies in 2012 ($2.1 million) was substantially down from the amount made in 2011 $(13.0 million).  

Those of us who work with clean technology companies know that capital raising activity in that space has become more challenging, and these numbers, unfortunately, provide further evidence of that difficulty.  Hopefully those numbers will turn around for the clean technology space in 2013.


  1. Yes, the angel tax credit program is important for entrepreneurship in MN, and it's good to hear at least that its popularity seems to be growing. Clean technology is historically hard to get people on board with, especially with some companies promoting themselves as "green" and then not actually living up to that standard. Hopefully 2013 will yield more investments in this sector, because it's so important to the future.

    1. Thanks for the comment, and agreed that the success of cleantech is important for our future - economically, environmentally and politically. I think the difficulty in fundraising in the cleantech space has less to do with companies not actually being "green" and more to do with the perceived return on investment challenge. That is, many clentech companies are capital intensive, and therefore the return takes longer and the investment is perceived as more risky. Despite this challenge though, there are still lots of good and innovative startup companies in this space. Several of these companies will be showcased in events like the Cleantech Open and Minnesota Cup, both of which are about to kick off again this year. Competitions like the Cleantech Open and Minnesota Cup do a good job of engaging the cleantech community and supporting startups through educational and networking opportunities. Let's hope that the success of those competitions, as well as the growing popularity of the Minnesota Angel Tax Credit, will stimulate further investment in Minnnesota's cleantech startups.

  2. Good distinction on the investment challenge, Max. The local competitions sound like a great way for startups to get visibility.