State lawmakers want to put some restrictions on the use of so called “angel fund” – where investors receive state tax credits.
But someone who works with angel funds says lawmakers need to be careful.
Angel funds are normally used to help start-up companies. A recent state Commerce Department report shows 19 certified angel funds invested in 116 companies – but only 61 of them are North Dakota-based.
"I find that to be somewhat offensive," said Sen. Dwight Cook (R-Mandan), who chairs the Senate Taxation Committee. "I think we should keep those funds in the state to produce and create jobs in North Dakota, not in Minnesota or Tennessee."
"It seems to us that some of the businesses are taking advantage of the rules, or lack of regulations, that we have," said Rep. Mike Nathe (R-Bismarck).
The chairman of the interim committee looking at the tax breaks -- Rep. Jason Dockter (R-Bismarck) -- says both Nathe and Cook are working on bill drafts to tighten the rules and require more reporting.
The CEO of the UND Center for Innovation Foundation says lawmakers need to be careful when they want new restrictions on angel funds that can offer investors tax credits. Bruce Gjovig says when the Legislature passed the bill allowing this tax incentive in 2007, it was to start a new industry in North Dakota – to provide venture capital.
"Pooled angel funds would only work if you allow the angels to invest in good companies, wherever they are, to build a strong portfolio -- 10 or more companies in a portfolio," Gjovig said. "The funds need to syndicate -- in other words, do business with -- other funds from other states. And you can't attract money in -- which they have been doing, but not tracking it, unfortunately. And you have to reciprocate, and be willing to do deals in Minnesota, South Dakota, Montana or elsewhere."
Gjovig says none of the pooled angel funds is yet making any money. He says that takes time. And Gjovig says these angel funds are doing nothing wrong.
"We have a new industry," Gjovig said. "They are investing in North Dakota companies. Not enough, but it's still some. And they are attracting angel and venture capital from out of state, which is something that's never happened before."
Gjovig says he would support better reporting requirements for the angel funds. But he says the tax breaks are a useful tool to attract capital.
