Raising Capital? Don’t Overlook the Indiana Venture Credit
Start-up and early stage companies face a daunting task when raising funds in the current economic climate. Debt financing is in short supply these days, and equity financing is even harder to come by. But, for a number of life science companies and other new businesses, the Indiana Economic Development Corporation (IEDC) provides a program that allows these entrepreneurs to sweeten the deal for investors with Indiana tax liability – the Indiana Venture Capital Investment Tax Credit (Venture Credit).Indiana tax law provides an income tax credit for providing qualified investment capital (i.e., certain debt instruments or equity capital) to a qualified Indiana business (i.e., an independently owned and operated business that is certified as a qualified Indiana business by the IEDC). The credit is 20 percent of the "qualified investment capital" provided to a qualified Indiana business during the year. Examples of qualified investments include investment in an Indiana-headquartered business primarily focused on commercialization of research and development, technology transfers, or the application of new technology (which of course includes investment in several types of life sciences companies). Real estate-related businesses and certain professional service businesses (e.g., accounting firms and law firms) are ineligible. Under the program, the business receiving investment must be certified by the IEDC as a qualified Indiana business, and the investment must be certified by IEDC as a qualified investment. Pass-through entities are eligible for the credit and may allocate the credits to investors in accordance with applicable tax accounting rules.
A taxpayer may not claim more than $500,000 in credits for a particular qualified Indiana business. Currently, the total amount of statewide credits that may be allowed for any one taxable year may not exceed $12.5 million. The credits may be carried forward for five years until used but the credit may not be carried back to prior taxable years; nor may a taxpayer claim a refund for unused credit amounts. Under current tax law, the credit is not available for investments after Dec. 31, 2012.
A local life sciences start up has been a big beneficiary of the tax credit program. FAST, a company in the process of commercializing a device that monitors kidney function, raised $2 million from Indiana investors who have benefited from the tax credit. Joe Muldoon, CEO of FAST, said, “It was a major feather in our cap to have that advantage, and made our company more attractive to Indiana investors." In fact, Muldoon believes that the impact of the tax credit goes beyond the $2 million mark. He said that the $2 million from Indiana investors was part of successfully attracting another $2 million in equity from outside the state, and contributed to the more than $ 8 million of capital secured to date.
“The state has been easy to work with and it is a very straightforward process,” said Muldoon. “It has been a very positive development for our company, and adds a compelling story for investors.”
FAST’s $2 million helped turn their product from development into a reality and aided in their pre-clinical work.
For more information about the Indiana Venture Credit, please contact Paul Jones, partner in the Tax Practice Group at (317) 236-5959 or paul.jones@icemiller.com.
Disclaimer:
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.