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Missouri’s legislature is again considering tax credits for angel investments

Bio Research & Development Growth Park at the Donald Danforth Plant Science Center in Creve Coeur. The complex houses various biotech and agriculture startups.<br/>
Danforth Center
Bio Research & Development Growth Park at the Donald Danforth Plant Science Center in Creve Coeur. The complex houses various biotech and agriculture startups.

Two bills working through the Missouri legislature this session seek to establish tax credits for investments made in early-stage companies and startups in the state.

The versions in the House and Senate vary slightly in their specifics, but both generally create an income tax credit, allocated by the Missouri Technology Corp., for a portion of the financing an investor puts into a young company. There are also limits for how many credits can be allocated to a single investor or investment in a venture.

“So not just one large investor or one wealthy person can suck up all the state’s credits,” said Ben Johnson, senior vice president of programs at BioSTL. “It’s really designed to benefit a broad range of companies across the state and to help create a market.”

This idea isn’t new. Similar legislation was introduced in 2023, 2017 and 2016. The bills this year have yet to be scheduled for a full floor vote in either chamber.

Johnson thinks this type of incentive would help emerging companies, with the potential for high-growth, more easily accessed capital on their way to becoming established. He said angel investments are typically the first professional money beyond friends and family going into a business to help it start.

“It’s the money that really helps give it roots, create those first hires, create a prototypes, secure a first customer,” Johnson said.

It’s a critical stage for a new venture because money from venture capital firms has moved to prioritize companies that have an established product or consumer and need help scaling it up, said Tim Faley, Missouri S&T’s associate vice chancellor of commercialization.

“How do you get from raw discovery to that point where you might entice a venture capitalist to get interested? You need funding,” he said.

Faley said without early support, nothing may come from innovative science and technology he sees at his institution. Or those ventures leave the state for Silicon Valley or Boston, something he experienced while working at the University of Michigan, he said.

“Anything spun out of the university went to the coasts because that’s where the money was,” he said.

It’s a scenario familiar to Brian Kinman, chairman and CEO of the St. Louis Arch Angels, a network of accredited investors.

“Not everything wonderful is invented in Silicon Valley,” he said. “An awful lot of things that are wonderful are invented right here. But what happens is we don’t have the capital to support it so Silicon Valley with all that capital pulls them out and they leave Missouri.”

There are examples of successful startups that haven’t left. Kinman points to CoverCress, a startup agriculture company that Bayer acquired in 2022.

“The longer the business has been around and the more substance [it] has, in terms of growth, sales, staff, the bigger the chance, even when they’re acquired, that they will remain here as a subsidiary of somebody else's organization,” he said.

Johnson wants to see more of an early-stage, high-risk investment capital market in the state.

“[It] isn’t just a Missouri challenge, it’s a piece of the financial market that doesn’t function very well outside of a couple of coastal hubs,” he said. “The talent and great ideas in Missouri need access to this capital for those companies to take root and grow and create their jobs in our state.”

New businesses account for the majority of job growth in Missouri, Johnson said. He argues an incentive to spur more investment in early stage companies aligns with the economic vision of the St. Louis region, specifically the bets on emerging technology sectors related to geospatial, agriculture and manufacturing.

“For us to really foster new companies, new job growth in these 21st-century industries, we need to help catalyze this market for early stage risk capital in the region,” he said.

The St. Louis region alone has some 55,000 accredited investors, or people designated by the Securities and Exchange Commission whom startups can pitch to, but only about 1% of them are actively investing in these early ventures, Kinman said.

“Part of the differential is people hear about the startup community and they get interested, but they don’t have an easy vehicle to completely understand what that is,” he said. “Or they’re a little concerned, or their investment managers are saying, ‘You don’t want to invest in startups, that’s crazy.’”

A tax credit for angel investing in the state could help build interest in it, because it would reduce the net financial exposure to an individual investor, Kinman said.

“So often in our area we sort of run a little light on capital sometimes,” he said.

It’s a challenge that’s especially acute in the state’s rural areas, Faley said. The bills look to address this by offering more incentive to invest outside of Missouri’s major metro areas, he said.

“It’s a gamble — if there’s a downside, now you get to write it off,” Faley said. “And if you’re willing to do it where I live in Rolla, the write-off is a little better because it’s rural.”

An incentive for angel investment could also benefit existing companies in the state by giving them a way to spin off new ventures, Faley said. He added companies can have internal ideas that they don’t pursue because they may be costly and fail.

“They’re happy to spin them out, if they’re successful, buy them back, which sounds insane,” he said. “But they’re not spending money on all the things that don’t work.”

Copyright 2024 St. Louis Public Radio. To see more, visit St. Louis Public Radio.

Eric Schmid covers the Metro East area in Illinois for St. Louis Public Radio. He joins the news team as its first Report for America corps member and is tasked with expanding KWMU's coverage east from the Mississippi. Before joining St. Louis Public Radio, Eric held competitive internships at Fox News Channel, NPR-affiliate WSHU Public Radio and AccuWeather. As a news fellow at WSHU's Long Island Bureau, he covered governments and environmental issues as well as other general assignments. Eric grew up in Northern Colorado but attended Stony Brook University, in New York where he earned his degree in journalism in 2018. He is an expert skier, avid reader and lifelong musician-he plays saxophone and clarinet.
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