Another Successful Year for Minnesota Cup

This year marked the 9th anniversary of the Minnesota Cup competition, an event that according to the Cup’s website is now the biggest emerging venture competition in the U.S. The competition culminated in a final awards event at the University of Minnesota’s McNamara Alumni Center two weeks ago on September 11, at which division winners gave oral presentations to the review board and the grand prize was awarded. Approximately 1,100 participants joined this year’s competition, which started last spring, competing for awards in six specific divisional categories: energy/clean tech, high tech, life science/health IT, social, general, and a student-only group. 

This year’s winners ran the gamut of unique, innovative technologies and ideas. In the energy/clean tech space, a company specializing in sustainable agriculture through the development of indoor/urban warehouse farming systems came out on top. In the high tech division, a business providing a practical and intuitive platform for company employee and staff scheduling won the prize. The winner of the social entrepreneur category was a Mankato-based community action agency that provides programs and services to help eliminate poverty, and the general division champ was a developer of a “safe and simple” blog for K-12 students.  My personal favorite was the winner of the student division, ShedBed, creator of a technology that attracts and contains pet hair and dander to a pet’s bed. I wonder if it works when your pet misappropriates your human bed… (I can’t help it—is anyone else’s dog THIS CUTE?!). 

“I’m sleeping in today.” – Mac (my parents’ Norwich terrier)

Overall, Preceptis Medical was the company that came out on top – the divisional winner in the life science/health IT division. This company received accolades for its development of tools to assist in ear tube procedures, the most common pediatric surgery in the U.S., allowing them to be performed in an outpatient setting in a fraction of the time, with parents present and less pain for the patient. 

With the Cup’s 10th anniversary approaching in 2014, it is clear that the competition continues to achieve its goals of not only supporting the Minnesota entrepreneurial community, but also of making the Cup a centerpiece of the state’s emerging business landscape. Good luck to next year’s participants!

A Post by Karen Wenzel, Guest Blogger

The Book: George Orwell, Animal Farm (Harcourt Brace Javonovich, Inc., 1946)

Why: A thought-provoking tale that works on many different levels, Animal Farm is as relevant now as when it was first published at the onset of the Cold War.

A colleague recently brought to my attention a real gap in my liberal arts education. He had read Animal Farm three times before his formal education came to an end. I thought I had read the book (and I certainly have read and am a fan of Nineteen Eighty-Four, by the same author), but nothing was familiar when I cracked open the well-worn paperback he lent me (cover price 75¢!) and began reading. As I continued to read, I realized that this is a book anyone who lives in a democratic republic should read at least once in his or her life.

It doesn’t focus on economics or entrepreneurship, though the economy is a critical element to the story. Nor are the lessons to be drawn from the book narrowly focused on economic morals. Eric Blair, a/k/a George Orwell, was actually a socialist, so it comes as some surprise that the book really isn’t a capitalism-bashing tale, and perhaps that is one of its real strengths. 

Of course, given Orwell’s background, this also isn’t a treatise on the importance of entrepreneurship to society or the economy (although it did make me wonder whether “all entrepreneurs are equal” or some are “more equal than others,” but I’ll save that thought for another day).

You can analyze this parable on any number of levels and in various contexts (the most obvious being that this is a simplified overview of the history of the Soviet Union in the early 20th century), but for those of us living in the post-9/11 world there are still lessons to be learned.

Sure, Orwell is ridiculing totalitarian states. But, if you read a bit more closely, you can also discern a subtle warning about the insidious threat posed by apathy in a democratic society. After all, it doesn’t take much to move the sheep from “Four legs good, two legs bad” to “Four legs good, two legs better.”

Using a Charitable Trust to Offset Capital Gains

We are approaching the extended income tax deadline for 2012 and it reminded me (as if anyone could forget) that 2013 carries significantly higher income tax rates for a lot of folks. We have the Medicare surcharge, and most of rates increased as well at a state and federal level. Between now and the end of the year, many people, including cash strapped entrepreneurs, will begin to assess their income tax situation for 2013—WARNING, you won’t like it. One of the things that are (happily) back this year is capital gains.

I wanted to use this post to introduce an interesting way to offset capital gains—a trust for charities and other beneficiaries called a charitable lead annuity trust, “CLAT”—yes, we estate planners have an acronym for just about everything… A CLAT is an irrevocable trust that pays an annual amount to charity for a period, usually a term of years. At the end of this term, all assets remaining in the trust are given to one or more non-charitable beneficiaries. Any appreciation on the trust assets in excess of the specified amount given to charity each year will pass to the remainder beneficiaries free of tax.

There are two types of CLATs, a “Grantor CLAT” and (what else) a “Nongrantor CLAT.” With a Grantor CLAT, the grantor will receive an immediate income tax deduction for the present value of the charity’s interest when the trust is funded, but the trust’s income will be treated as the grantor’s income for income tax purposes. This is where the offset of capital gains comes in, a large charitable deduction.  In contrast, with a Nongrantor CLAT, the grantor will not receive an income tax deduction upon creation, but will also not pay any income tax on the trust’s income. 

When a CLAT is created, the present value of the remainder interest for the noncharitable beneficiaries (e.g., a sibling, child, niece or nephew) will be a taxable gift. This portion is calculated using the term of the trust and the current IRS §7520 rate.  The §7520 rate was at a historic low of 1.2% for June, but was up to 2.0% for August. We have the option to use any of the last three months’ rates.  A low rate means that the present value of the remainder interest will be extremely low—resulting in a low value taxable gift, even though the eventual benefit to your sibling or niece or nephew may be significantly higher. Essentially, any growth of the trust assets in excess of the projected rate of 1.2% will pass to your child, sibling, or niece or nephew tax free.   

Below you will find an illustration of how you could use that spare $1 million you’ve got lying around (from your last successful venture) to create a CLAT that would benefit of one or more charities for a term of years and then benefit your beneficiaries when the trust terminates. In preparing these calculations, I used the IRS rate for June (1.2%); I also assumed that the trust would pay out 5% each year and would be for a term of 15 years.  

Charitable Lead Annuity Trust: 

Initial Contribution:          $1,000,000
Term of the Trust:          15 Years
Initial Annual Payout to Charity (5%):            $50,000
Present Value of Interest for Family:          $317,355
Present Value of Charitable Interest:          $682,645
Immediate Charitable Deduction:  $682,645 (If a Grantor CLAT)
Taxable Gift to Sibling, Niece, or Nephew:  $318,871
Expected Value on Termination (7% Growth):$1,502,580
Benefit to each of Child: $751,290 (assumes 50/50 division between 2 children)

Although you would have an initial taxable gift of $318,871 (which reduces your lifetime exemption of $5,250,000), you would eventually transfer $1,502,580 without any tax.  If you share in this gift with a spouse, it will impact each of your lifetime exemptions by half as much. Using the above example, you would receive an immediate income tax deduction of $682,645!  Amazing option to benefit your favorite charities and beneficiaries while offsetting some gains this year. 

I often recommend this to clients with high earning years, or when selling a substantial block of stock or a business. It is just another tool in the estate planning toolbox that not many people know about.

ESG GOES GLOBAL

As a member of Gray Plant Mooty’s Entrepreneurial Services Group, I love to jump on my Yamaha Zuma moped and ride the few blocks to CoCo where I can visit with local entrepreneurs and get energized by all sorts of new and exciting ventures.  I love to have a cup of coffee or a beer with the folks that hang out at this local hot spot for start-ups.

But this week I am going global and flying to Denmark.  Biopeople, an organization established and funded by the Danish Ministry of Science, Innovation and Higher Education, has invited me to Copenhagen to speak to a group of start-up and emerging companies on how to navigate the intellectual property landscape here in the USA. 

The mission of Biopeople is to stimulate innovation through activities that bring researchers and stakeholders together across disciplines, sectors, and public-private boundaries. This specific workshop has been arranged by Biopeople and the Danish American Business Forum for companies that want to enter the American market, with a special focus on intellectual property. This workshop follows an earlier one that covered FDA compliance issues. 

So on September 12, I will share the podium with a Danish lawyer, Jakob Nielson, and Thomas Tscherning, the Director of Technology Transfer at Aarhus University. The audience is largely early stage businesses that are interested in the American market and are looking for guidance on intellectual property strategies and monetization. 

Biopeople is also organizing a business trip to Minneapolis for November 18-22 for any of the companies participating in this workshop or others that may be interested in exploring Minneapolis/St. Paul.  They have identified the Twin Cities as one of the leading life sciences clusters in the US and very compatible with Denmark from a business and cultural perspective. They plan on visiting Medtronic, Boston Scientific, 3M, and St. Jude. I would also like them to visit CoCo and other places where some of these Danish entrepreneurs might find kindred spirits. Perhaps a kringle and some coffee will be available at CoCo during their late November visit.

See here for more information on Biopeople and this upcoming workshop.

One picture is worth…what, exactly?

Raise your hand if you recognize the name “Gita Hall May” (No link – you have to do this on your own).…Anyone?…Anyone?  

Here’s some help – think 1950s, 1960s…Model, actress, girl-about-town…Still no clue?  

Miss Stockholm of 1952.  Claimed by Walter Winchell to be his “discovery.”   Married briefly to the actor Barry Sullivan.  Photographed with celebrities such as Shelley Winters and Gary Cooper.  Claimed friend of Errol Flynn.  New York roommate of Tina Louise (as in Ginger on Gilligan’s Island).   

If you still haven’t placed her, don’t feel bad.  The above information is the best I could do.  If you have been searching the web, you have by now found the same information and likely have seen a picture or two of the lovely redhead.  But be truthful—even after looking at her pictures, did you actually recognize her?  I didn’t.

Let’s try another route.  Are you a fan of the cable television show Mad Men?  The AMC drama about Madison Avenue advertising in the 1960s?  The show’s opening credits show a man (animated) falling from a tall building and slowly passing a number of images superimposed on buildings that reflect or are suggestive of advertisements of the era. About two-thirds of the way down, if you look quickly, you will see – for a second or so – the face of a striking redheaded woman.  That is Gita Hall May. 

The image of Ms. Hall May’s head used in the Mad Men opening sequence is cropped from a photograph taken in the late 50s for a Revlon Satin-Set hairspray ad.  According to Ms. Hall May, she consented to the use of her photo for the Revlon ad (for which Lionsgate is believed to have obtained a license), but not for its current use as a “centerpiece” of the opening of the award-winning – and highly profitable – Mad Men.  Gita Hall May sued Lionsgate Entertainment, the producer of Mad Men, claiming that the use of her image in the title sequence without her permission violated her right of publicity and she is entitled to compensation because her picture was important to the success of the program and has contributed to its profits.  Last month, the suit was settled on undisclosed terms.  

The “right of publicity” is a recognized intellectual property right largely governed by state law – by statute in nearly half the states and by common law in most, if not all others.  It is the right to control the commercial use of one’s own image, and may be applied to one’s name, voice, likeness, gestures or mannerisms signature or other element of personal recognition.  This right belongs to everyone, but as a practical matter is rarely the subject of a dispute except in connection with celebrities.  

Although Gita Hall May’s photo may have been used in a commercial work, there were few who thought she would win.  The issues can be complex, but Lionsgate had good legal arguments.  And even if found liable for the violation, most seriously questioned that there would be much compensable value to the one-second or so view of Hall May’s picture – which is one of some 40+ images used in the opening sequence.

We’ll maybe never know why the matter was settled – why Lionsgate was presumably willing to pay to make it go away and/or what Gita was willing to accept.  While both sides probably agreed for economic reasons, I like to think that Lionsgate decided to respect this former beauty who likely received a mere pittance for the original photograph and Gita was happy to once again be in the spotlight.  I do hope that part of the deal did not involve removing Gita’s picture from the opening sequence.  I like knowing that she is real and that the images do actually come from another time.