A change that Indiana lawmakers made this spring to a tax incentive for startups is being hailed as a big win for the tech industry because it promises to make it easier for fledgling businesses to attract out-of-state investors.
Legislation signed by Gov. Eric Holcomb will allow investors to transfer Indiana’s Venture Capital Investment tax credits starting next year. Transferring the credits will allow out-of-state investors to essentially sell them to someone in the state who can take advantage, the Indianapolis Business Journal reported .
Many tech community leaders believe the change will encourage out-of-state investment in Indiana startups.
“It’s certainly not the only driver when making the decision about whether to invest in a company,” said Mike Simmons, executive chairman and president of Sharpen Technologies. “But it certainly makes it a much easier decision.”
The state’s VCI tax credit program allows an individual who invests in an Indiana startup to claim a tax credit worth 20% of the investment. Someone investing $500,000 in an eligible startup can receive a $100,000 cut in income taxes owed to the state. The credit is capped at $1 million.
Startups eligible for the program have to register with the Indiana Economic Development Corporation and set a venture capital fundraising goal. Investors can receive the 20% credit until the company reaches its target, which is capped at $5 million.
The development group can only award $12.5 million in tax credits each year. The total credits haven’t yet reached the cap.
“What’s so great about it is, it provides virtually an immediate return on investment,” Simmons said.
Scott McCorkle used the credit to attract investors for his software company, MetaCX Inc.
“It makes for more aggressive investments, so a higher level of funding,” McCorkle said.
The change also gives Indiana a selling point over neighboring Illinois, Michigan and Ohio, where the tax credit isn’t transferable.
Scott Dorsey, a tech entrepreneur and investor who helped establish venture studio High Alpha, said, “It just gives us a bigger platform to tell the story of all the great things that are happening in the state of Indiana startup scene.”
