Tech investors gain with MD incentive bills

Daily Record, The (Baltimore), Jan 27, 2005 by Robyn Lamb

A bill has been introduced, as part of Gov. Robert L. Ehrlich Jr.'s economic development plan, to promote investment in the state's biotechnology and information technology industries.

The bill, expected to be joined by similar legislation next week, would give tax credits to private investors funding small, fledgling technology companies in the state.

The administration's proposal would return to investors 45 percent of their outlay in the form of a credit on their state tax bill. The return would begin in the third year after the investment and would be spread out evenly over three years.

Individuals must invest at least $50,000 to be eligible for the credit, which is capped at $8 million per year, according to Senate Bill 218, which was filed this week.

The state's responsibility is to step up the plate where there is real need, said Christopher Foster, deputy secretary at the Maryland Department of Business and Economic Development. And that is high risk, early stage angel investing.

The administration's proposal will be joined next week by a revised version of the Biotechnology Investment Incentive Act, which Del. Brian J. Feldman, D-Montgomery, introduced in the last legislative session.

Fiscal worry kept the bill from gaining approval last year, but Feldman has resurrected it in a way that addresses such concerns, he said.

Similar to Ehrlich's approach, Feldman deferred the tax credit for a number of years so there is no immediate fiscal hit to the state, but money still flows to the companies that need it.

But to make up for the deferment, Feldman increased the credit amount from 33 cents on every dollar invested to 50 cents.

Where the two proposals differ is in their scope.

Feldman's Biotechnology Investment Incentive Act targets biotechnology companies specifically. Ehrlich's bill is broader, encompassing information technology companies as well.

Unlike Ehrlich's bill, which limits the credit to angel investors, Feldman's bill includes both angel investors and venture capital firms, which accounted for $34 million of funding to Maryland biotechnology companies in the fourth quarter of 2004, according to PricewaterhouseCoopers.

I have been persuaded that the real driving force in terms of moving venture capital and meaningful dollar amounts are venture capital firms, said Feldman.

My bill deals with both venture capital firms and angel investors in attempting to incentivize both, whereas the governor's bill deals solely with individual investors. I think in that sense, it is a pretty material difference.

It is the angel investors, however, who have been more adversely effected by the economy's downturn and need the extra encouragement, said Foster

Also different is a provision in Feldman's bill for the state to receive a return on the credit if the company or its investors is successful above a certain level.

While the two bills vary, both Feldman and Foster are optimistic there is support for the credit that technology advocates around the state have been demanding for some time now.

The time has come for us to step up whether it is the governor's program or my proposal or some combination of the both, said Feldman. It's something we need to get done.