Last week, I reported on Opus Ventures and the new VC fund it’s raising to invest in early-stage Maine companies. If you read about it the Portland Press Herald or Mainebiz, all you got was a regurgitated news release from the company with no extra reporting or analysis. But I dug into the news a bit to provide MSI readers with a deeper understanding of the news and its implications.
One aspect of the news that caught my attention is that Opus Ventures is raising the fund as a vehicle to provide tax-exempt charitable organizations with access to Maine’s Seed Capital Tax Credit program, which provides venture capital firms with “refundable” tax credits worth 50% of their investment. A “refundable” tax credit is one that the holder can use to trade in for cash if they don’t have any Maine income tax liability. Chris Roney, general counsel at FAME, confirmed for me that it’s the first he’s heard of a tax-exempt entity attempting to use the program to obtain “refundable” tax credits.
This development is newsworthy because the Seed Capital Tax Credit program is already being so heavily used that its annual cap of $5 million for 2018 has already been reached (it was reached in April), earlier than it’s ever been reached before. It’s clear that the Seed Capital Tax Credit program, and the change that was made a few years ago to provide VC firms with “refundable” tax credits, is beginning to garner more attention. More funds jumping in likely means more competition for the tax credits, which means the cap will continue to be hit earlier and earlier in the year. This is speculation, but I could see that making it more difficult for companies to raise funds throughout the rest of the year if investors become conditioned to expect 50% of their investment back and insist on waiting to invest until the next January when more credits are available.
I’m been reporting long enough to know not to try to read the minds of lawmakers, but I was under the impression that the change to provide “refundable” tax credits to VC firms was made so as to attract the interest of out-of-state VC funds that don’t have any Maine tax liability. The fact Maine-based charitable foundations are now figuring out a way to access those scarce tax credits is an interesting development. I’m not arguing whether it’s right or wrong, since more VC firms jumping into the program could mean good things for companies raising capital, but it does strike me as example of how people and businesses often find ways to take advantage of government programs in ways not originally envisioned by legislators.
I happen to know there are already efforts afoot to lobby the Legislature to increase the annual cap on the Seed Capital Tax Credit, so bringing attention to and providing context around these new developments will be important for the lawmakers and stakeholders interested in this program and its role in supporting Maine’s early-stage companies.
If you value this source of original Maine startup news, please consider supporting Maine Startups Insider with a monthly pledge on Patreon.
