PricewaterhouseCoopers LLP recently issued a report examining U.S. venture capital investments by state. The study looked at the number of deals funded by state, the share of deals in the United States by state, and the total amount of venture capital dollars invested by state. PwC uses data provided by the National Venture Capital Association and CB Insights for its report.
Unfortunately, the report shows that Indiana has work to do when it comes to attracting venture capital dollars. As of Sept. 30, 27 Indiana companies had secured venture capital totaling $64 million. In terms of the number of companies funded, Indiana has a 0.7 percent national share of deals. The $64 million in venture capital funds represents a 0.1 percent national share. Overall, Indiana ranks 21st in the country year to date.
Fortunately, there is some good news. Great work is being done by the Central Indiana Corporate Partnership, TechPoint, BioCrossroads, High Alpha, Launch Fishers, the Indiana Economic Development Corp., the Indiana Chamber of Commerce, universities/colleges, and several other groups and individuals. These organizations are working hard to mentor, invest and grow technology companies in our state. In addition, these “evangelists” continue to talk with people throughout the world about the great things going on in Indiana.
So, what can we do to address the venture capital challenge and build on the momentum in our state? One very important step is to make the Venture Capital Tax Credit refundable and/or transferable. Currently, the VCTC can be used only by individuals and organizations that have Indiana state tax liability. What that means is that investors and groups outside Indiana that want to invest in technology companies inside Indiana cannot derive any tax benefit for doing so, while other states provide refundability and/or transferability of their tax credits.
While some argue that venture capital finds good deals and the money follows (which I believe on some level), it does not address a situation whereby an individual or group is looking at how to invest venture capital money that it has available and is considering investments that look equal on paper in different locations. In that case, you are likely to invest in the one that affords some additional benefit, such as a refundable or transferable tax credit.
By making the VCTC refundable or transferable, investments in Indiana companies would become more attractive to investors at a time our 20 percent tax credit value is lower than that of many “best in class” entrepreneurial states. Many states are offering angel and venture capital tax credits worth 25 percent to 50 percent of eligible investments in startups and early-stage companies. In a world where capital is mobile and investors look for the best opportunities, the value and usability of tax credits are very important.
If Indiana is serious about controlling its own destiny in terms of developing and growing new technology companies, the state needs to enhance the VCTC program by allowing refundability and/or transferability of the tax credits. We have so much momentum right now when it comes to growing technology companies, but we are holding ourselves back from an even greater opportunity. Can you imagine the growth we could unleash if we make this change to the VCTC program? The time to act is now.•
Larry Gigerich is executive managing director of Ginovus.