Entrepreneurial efforts show there is a place for tax credits

March 13, 2011
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Entrepreneurship is faring rather well in a Michigan economy that, while struggling, nevertheless displays hopeful signs of recovery, according to the Small Business Foundation of Michigan and Small Business Association of Michigan.

Diligent efforts to grow this vital aspect of the state’s commercial base remain essential in both the private and public sectors.

The SBAM foundation’s seventh annual Entrepreneurship Score Card finds that, compared to the previous year, Michigan is generally holding steady relative to the other 49 states.

Some important positive insights gleaned from this year’s Scorecard data:

  • Michigan’s fast-growing “stage two” small businesses are weathering the economic storm and are continuing to lead the way in the state’s economic reinvention.

  • The University of Michigan has launched as new master’s degree, Entrepreneurial Education, representing an important educational commitment to entrepreneurship development.

  • Michigan continues to maintain high marks in those areas necessary for a vibrant global economy, such as high-tech work force and quality of higher education.

The state is holding its own when it comes to fostering an entrepreneurial climate, the study determined, but is falling short in some key areas when compared to the rest of the country.

The state's strengths are focused squarely on the quality of its research and development capabilities, according to 2009 SBAM figures. Michigan has a highly skilled technical work force, ranks 13th in university spinoffs and ninth in private lending to small businesses. The number of self-employed Michigan residents also has increased, the scorecard shows.

The more challenging areas are stark, however. Michigan ranked 50th in small-business payroll growth and general business growth, 45th in entrepreneurial climate and 30th in entrepreneurial vitality.

Michigan’s ranking on the Entrepreneurship Sensitivity Index, a composite score developed last year to detect very recent (annual) changes in small business formation and growth, fell from 22 in 2009-10 to 33 in 2010-11 — not an unexpected result given the state’s recessionary predicament.

As the Business Journal reports this week, Michigan’s life sciences industry could become a more important economic sector if the state takes steps to bolster it, according to a plan issued earlier this month by trade organization MichBio.

“The Future of Biosciences in Michigan” is the report delivered by MichBio President and CEO Stephen Rapundalo to the bipartisan Michigan Bioscience Legislative Caucus.

The report offers several topics and dozens of recommendations, from changing the Michigan Business Tax to creating “bioscience zones” to teaching biosciences in the K-12 education system.

The plan is based on the testimony of bioscience professionals in 2009 and 2010 before the House Subcommittee on Biosciences, as well as MichBio roundtables and a survey.

Despite Gov. Rick Snyder’s distain for tax credits, the report urges the state to retain the Angel Investor Tax Credit, enacted just last year, as a “primary tool” in attracting venture capital for life sciences.

It also suggests a new tax credit and a review of how the tax credit system impacts the bioscience sector. All deserve serious review in Lansing despite the rocky budget picture.

Among the plan’s other points:

  • More funding for the Micro-Loan Program, Pre-Seed Capital Fund and Emerging Technology Fund; establishing a low-interest loan program for infrastructure for bio-manufacturing and research and development; directing more state pension fund investment toward bioscience companies.

  • Develop a formal strategy for growth in the biosciences sector; map the industry’s current assets; look for opportunities in contract drug development, clinical trials, bio-based technologies and bio-products, nutraceuticals and nutritional food products.

  • Build on tourism’s award-winning Pure Michigan advertising campaign to market the state’s biosciences industry.

  • Create a Bio-Industry Workforce Council; provide financial incentives to retain students trained in bioscience fields.

Meanwhile, a new state tax credit designed to encourage the development of startup companies in one of Michigan’s fastest-growing industries is now available.

The Michigan Economic Development Corp. has indicated there has been exponential growth in the number of technology startups, but limited access to early-stage capital meant Michigan lost some of them to states with more funding sources.

The Small Business Investment Tax Credit promotes access to capital for early-stage companies by offering a 25 percent personal tax credit on investments in young Michigan-based technology companies.

While the tax credit was modeled after other states’ in the Midwest including Wisconsin, Ohio and Minnesota, it offers less credit to investors.

But the appeal for technology seed companies to root themselves in Michigan soil goes beyond the tax credit.

It goes back to Michigan’s competitive advantage with its large number of talented engineers, students and the higher education that spends a lot of money on research and development.

The Michigan Strategic Fund can certify up to $9 million in credits, and each investor can receive a maximum of $250,000 in credits per year. If each investor received the maximum, 36 investors could receive the credit in one year.

Capital News Service reported 18 investment groups have registered with the Michigan Strategic Fund to receive the credit, and more than a half-dozen businesses were qualified.

Brown said the response of technology-based startups and investors was expected and he hopes the entire $9 million will be allocated to companies this year.

The program will serve as a valuable incentive to promote the entrepreneurial culture in Michigan.

By targeting seed companies, this credit, and others targeted at real growth efforts, will have positive results for the technology industry.

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