May is growing season in Minnesota, a time when we think about planting crops, gardens and flower pots.
This is also a good time to think about seed funding, the kind of investments that help grow startups from good idea to great company.
We know many stories of innovators in science and technology who are looking for seed funds to move their business beyond the early stages. We have heard of startup struggles from our members at the Minnesota High Tech Association and Medical Alley Association. Many of those startups have had tremendous success.
Minnesota is home to some of the biggest names in the science and technology industries, and Minnesota is the number one health technology cluster, offering life-saving technologies around the world. Rochester has become a hot spot for biotech startups. As the Post Bulletin noted in its editorial Tuesday, biotech investors need reasons to look at Rochester, as every dollar of investment makes a difference.
An important source of seed funding for Minnesota-based startups since 2010 has been the state’s Angel Investment Tax Credit. The tax credit works by providing investors a 25-percent tax credit on funds they invest with qualified, small science- or technology-related businesses based in Minnesota.
The tax credit has shown a 3-to-1 ratio of additional private investment, with $3 of investment gained for every $1 of tax credit from the state. Since 2010, it has helped leverage more than $421 million in private investment in Minnesota-based startups. Last year alone, 101 startups benefited from the tax credit, spurring over $45 million of private investment in emerging companies.
Among the startups that have had success leveraging the tax credit is Rion, a Rochester biotech company founded by Dr. Atta Behfar of the Mayo Clinic Center for Regenerative Medicine. Rion successfully raised almost $4 million utilizing Angel Investment Tax Credits to further its work to develop stem cells to regenerate tissue and prevent or cure heart conditions. Rion offices are based in the BioBusiness Center.
The state Legislature will decide this session whether to fund the tax credit. We are encouraged to see bipartisan support among state lawmakers: DFL Gov. Mark Dayton included funding in his budget, and the Republican-controlled House and Senate have funding in their budget proposals as well.
The tax credit is a relatively small state program, but it gives a large nudge for investors. We strongly encourage legislators and Gov. Dayton to fully fund this vital tool.