The Venture Capital Investment Tax Credit program is a tool founders can use to raise money for their early-stage startups. Investors who provide qualified debt or equity capital to companies in Indiana receive a credit against their Indiana tax liability. This program started in 2004 and improves access to capital for startups by providing a significant tax credit for funders. More than 700 companies are in the program.
Who is eligible?
This tax break is for investors only. The investor may be individuals or entities and they have two years from the date they are approved to make their investment. There is no minimum investment. Even if a founder puts cash into the company—not to mention blood, sweat and tears—he or she unfortunately is not eligible to receive the tax credit. It is in the founder’s best interest to understand this process and fill out the necessary forms to ensure that investors are positioned to receive the tax credit.
Not every startup qualifies for the VCI credits. Licensed professions, retail sales and companies that have exceeded $10 million in sales over the last two years are excluded. Half of the startup’s employees must reside in Indiana or 75 percent of the company’s assets must be situated in the state.
What is the tax credit worth?
Approved investors can receive a credit worth the lesser of the following: $1 million or the total amount of investment capital provided to the qualified Indiana business in the calendar year multiplied by 20 percent. If the amount of the credit exceeds the taxpayer’s state tax liability for that year, the investor has the option to carry over the excess credit for up to five years.
How do you apply for the VCI credits?
It’s a simple, three-part process. First, the startup has to be certified by the Indiana Economic Development Corp. as a qualified Indiana business. It’s a short form collecting some basic information about the location of the business as well as the type of goods and services being sold. Businesses may use this link to apply: pims.iedc.in.gov/VCI/QIB.aspx.
Second, the investor submits a capital investment application for IEDC approval before making the investment. Investors may use this link to apply: pims.iedc.in.gov/VCI/Investor.aspx.
Once the investment application is approved, the third step for the investor is to make a qualifying investment and submit supporting documentation to IEDC so the investment can be certified. Essentially, IEDC needs a receipt to confirm that an investment was actually made.
It usually takes less than 72 hours to validate an investor. If you have any questions about the process, contact Lee Robinson who oversees the program at [email protected] or 317-233-3638.
Is there a due date?
During the fourth quarter of the fiscal year, it’s common for many companies to have funding left over from budgets that were not fully spent. Individuals are looking to make donations to their favorite charitable organizations. Often, there is a scramble in December to make sure checks are written and received by the 31st so the appropriate deduction is slated for tax season.
If you know you will have a few extra dollars to spend, why not invest it in a woman-owned startup—especially one that is making a positive social impact? You can help the company sustain its growth in your community and reduce the amount you owe the IRS in taxes. Win-win.
While there is no official due date to apply for VCI credits, you are competing against the clock. The state has allotted only $12.5 million in tax credits. As of Oct. 1, only $2.4 million was remaining. The state maxed out on its tax-credit distribution last year.
The startup community has grown so substantially over the last 14 years, it’s probably time to increase the VCI credit ceiling to about $20 million. IEDC would eventually like to allow investors the opportunity to sell any unused credits to taxpayers who may be able to use it.
How do you connect with women-owned startups?
There are several women-owned, scalable, tech, tech-enabled, product and service businesses in central Indiana that qualify for VCI credits. Begin by asking the founder if she is eligible for VCI credits. If not, she can begin the short process immediately.
At The Startup Ladies, we connect investors to female-founded companies. Among those worth considering for investment in the fourth quarter are: AwayZone, Little Nugget, LuxeLyx, OpenBooksMD, DNK Presents, Selflessly, SmartNoggin Toys, Synapse Sitters, and Urban Chalkboard. Google these companies, then reach out to the owners through LinkedIn, introduce yourself, and ask to learn more about investing opportunities.•
Cooper is CEO and founder of The Startup Ladies.