Minnesota has long been a leader in science and technology innovation, but over the last decade has seen a precipitous decline in our ability to generate new business ventures. As we begin our climb out of the Great Recession, it is imperative Minnesota is well-positioned to support early stage company growth and that includes passing an Angel Investor Tax Credit early this legislative session.
Consider that Minnesota ranks second nationally in the number of medical device companies, yet we are ranked 48th for startup companies in biotechnology and innovative technology. The rest of the country's medical technology industry is growing at a rate of 15 percent per year nationally, yet Minnesota plays almost no role in that growth.
Why then, in a state that is a leader in science and technology, aren't new innovative technology companies springing up at the pace of other states? It's because the companies can't find investors the way they can in other states where the government offers an Angel Investor Tax Credit -- a tax credit that is given to people who invest in small but emerging companies.
I'm glad to say that this problem is on the radar of both the DFL and GOP at the Capitol as well as Gov. Tim Pawlenty. An Angel Investor Tax Credit was introduced early in the 2010 legislative session and has many co-authors, including myself. Gov. Pawlenty has also included the tax credit in his supplemental budget he released Monday.
An Angel Investment Tax Credit, as proposed in both the House and Senate, would give investors a 25 percent tax credit on their investment in Minnesota companies with less than 25 employees and under $2 million in annual gross sales. These companies will have to be engaged in high technology, research and development or green manufacturing. The maximum credit per investor is $125,000.
This proposal could cost up to $10 million to $12 million annually. At a time when the state is facing a $1.2 billion budget deficit, that won't be easy money to find. But if we do this now, the bill could create as many as 6,300 jobs annually that pay average salaries of $43,000 to $55,000, according to the Minnesota Department of Employment and Economic Development. Plus, the bill could create $21 million in state tax revenue every year.
Minnesota has made significant investments in research at the University of Minnesota and Mayo Clinic. We can't let these investments leave our state in search of investors who have better incentives. Both Wisconsin and Ohio enacted an Angel Investor Tax Credit in the last decade. Wisconsin and Ohio had 20 venture capital deals combined in 2003, while Minnesota had 40. In 2008 Minnesota had 38, but Ohio and Wisconsin jumped to 59 combined.
Minnesota has lost companies to those states and others that have an Angel Investor Tax Credit. I cringe when I see Minnesota innovators -- who love our state -- run for the border because they can't get the startup money they need to grow their businesses. I urge the House and Senate to pass this tax credit quickly and the governor to sign it into law.
Tim Mahoney, DFL-St. Paul, is a member of the Minnesota House and chairman of the House Biosciences and Emerging Technologies Committee.