Credits for venture capital

Early-stage, high-risk startup companies in Minnesota might have access to a larger pool of venture capital, under a bill that won House committee approval.

Sponsored by Rep. Keith Downey (R-Edina), HF1823 would establish a “Minnesota Business Investment Company” (MBIC) credit program. It proposes up to $100 million of tax credits to incentivize insurance companies to invest part of their reserves in venture capital firms that fund Minnesota-based startups.

The House Jobs and Economic Development Finance Committee approved the bill Feb. 9 and referred it to the House Taxes Committee.

Similar programs already exist in

12 states, where they are commonly known as CAPCO (Certified Capital Companies) programs. Downey said the bill would help level the playing field with these other states.

“This would incentivize investment to the small business world,” Downey said. “It would do so not just through a credit to the investors, but by incentivizing insurance companies to allocate a portion of their reserves in their investment strategy to small businesses in Minnesota.”

In addition, the bill would expand the state’s current angel investment credit program by increasing the annual limit from $12 million to $20 million; repealing minimum wage requirements for recipients; improving public disclosure; and tightening eligibility requirements.

Jeff Nelson, who coordinates the angel investor credit program for the Department of Employment and Economic Development, said that in just a year and a half, the program has spurred $92 million of investment. In 2011 alone, 113 businesses were funded by investors utilizing the credit.

“There are a number of types of companies that are receiving the money, but the most common industry types are medical devices, software, biotech and clean tech,” Nelson said.

Rep. Tim Mahoney (DFL-St. Paul) questioned why the state was giving tax breaks to insurance companies. If venture capital investing is such a good idea, he asked why the state doesn’t just invest in its own pension funds and keep the potential profits.

Downey replied that he did not necessarily oppose that idea, but said he thought it was a separate issue. He noted that Wisconsin’s public pension fund includes more high-risk investments than Minnesota’s.

Sen. Geoff Michel (R-Edina) sponsors the companion, SF1774, which awaits action by the Senate Jobs and Economic Growth Committee.