Small business may find angels in new investment tax credit
As grave tax issues are settled on the federal level, Michigan business owners also may look forward to redemption from the ill-conceived Michigan Business Tax as Rick Snyder prepares his gubernatorial inauguration speech now just less than 20 days away. Still, as economist George Erickcek noted last week during the annual regional employment forecast, tight credit markets continue to curb entrepreneurial effort and investor appetite.
The Grand Rapids region has a history of “church basement” investment deals, not always with happy endings, and the venture capital professionals are hampered here by lack of networks and experience. So it is important to note that Gov. Jennifer Granholm’s final days will include signing the Small Business Investment Credit, which gives “angel investors” a 25 percent tax credit over two years, with a maximum of $250,000 per year per investment in Michigan-based businesses.
The Michigan Venture Capital Association in the third quarter reported a 35 percent increase in investments to Michigan startup companies, amounting to $123 million. The association noted the two largest investments again went to east Michigan companies, which may likely have economic impacts to West Michigan: Cerenis Therapeutics, an Ann Arbor biopharmaceutical company, and Troy-based EcoMotors International, which develops high-efficiency gas and diesel engines. The latter drew investment from, among others, Microsoft Chairman Bill Gates.
The obvious tie-ins to West Michigan business also sets the stage for the work of angel investors like Grand Angels, a group started by Grand Bank founder Chuck Stoddard and Craig Hall. The regional investment group currently has 35 members, and its president expects that number to grow substantially as the new state credits are available.
The Michigan Economic Development Corp. provided oversight on the new law to specifically address qualified investments in an arena already marked by increased risk for early stages of a new business. It is hoped that, too, will incent investors out of those basements so famous in West Michigan.
Erickcek noted that employment in the Grand Rapids statistical area has stabilized, and the Grand Rapids Area Purchasing Managers Index is higher than it was before 2007. He also noted that employment levels here are growing at a more favorable rate than other Midwest cities to which Grand Rapids is compared. These facts, too, create business confidence. But while he predicts “painfully slow” growth, the Small Business Investment Credit could give Erickcek reason to eat his words next December.