It’s been more than three years since Nebraska passed a law creating a tax incentive for investors to back startups. But the Nebraska Angel Investment Tax Credit has a problem. Granted, it’s a good problem.

Each year, more investors are pulling the trigger to fund startups and take the tax credits. So much so that the annual $3 million fund has run out faster and faster.

In 2012, its inaugural full year, the funds were gone by mid-July.

In 2013, gone by mid-April.

This year? Jan. 1.

“This year we had bigger demand than available credits,” said Joseph Lauber (right), the man at the Nebraska Department of Economic Development who manages the credit.

The fund, created to help spur investment in startups, has helped more than 30 small businesses and startups so far. More than 50 startups are eligible for the fund, including Bulu Box, Travefy, Flywheel, CropMetrics, Vitru and Best Option Trading, though not all have been funded through the program. 

Hundreds of angel investors are registered with the state, Lauber says. So it may not be a big problem, but it certainly means the demand is there to invest in more startups.

This year, those who invested $25,000 in equity would usually have gotten a 40 percent credit, or $10,000. But because of the demand, investors only got $8,624. 

Lauber chalks the popularity up to its unique refundable setup, meaning that even if the credit exceeds the amount you owe in taxes, you still get a refund check from the credit. 

How the program works

1. Businesses with a high tech focus looking to attract funding apply and become certified in the program. It must have 25 or fewer employees, be based in Nebraska and have at least half its payroll in Nebraska.
2. Investors apply to become eligible for the credit. 
3. Investors who want to invest in a startup apply for the tax credit, which is 40 percent of an investment of $25,000 or more for individual investors. 

There is a notable restriction: The fund can’t pair investor and businesses with each other, so investors and companies must network and figure out the investment on their own.

The program was created after a 2010–11 economic climate study found Nebraska came up short in angel investing and venture capital.

“Nebraskans invested in more long-term, conservative things than startups,” Lauber said. “The program was designed to increase the volume, dollar amount and frequency of investment, but also to reduce some of the risk through credits.

“In doing this, we hoped innovative companies wouldn’t have to go to California to get their first round of funding and also reward Nebraska taxpayers to help diversify their portfolio.”

The $3 million in tax credits have helped lead to more than $8 million in total funding, Lauber says.

“There’s an impact,” he said. “It’s getting the attention of investors and investment groups throughout the state and viewed as a creative tool for a lot of small-business owners and entrepreneurs.

“But, if not for the program, a lot of businesses wouldn’t have been able to expand.”

When the bill was proposed in 2010, the credit fund was supposed to be for $5 million, but it was cut down to $3 million because the economy was coming out of the recession. In recent years, Sen. Pete Pirsch tried to raise it to $5 million but failed and the measure hasn’t come up since 2013.

But the program may not even be a reality if the legislature doesn’t act by 2017. It has a sunset date and would no longer be offered unless senators vote to extend it.

As for how Nebraska compares to other states, Lauber hasn’t done a lot of research. Iowa currently offers $2 million in tax credits. Kansas offers $6 million a year. Minnesota has $15 million in credits. Missouri’s legislature failed to pass a bill this year to begin an angel investment program.

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