QNBV program encourages investments in high tech businesses

Given today’s financial realities, most new high-growth companies need outside investment to bring their ideas to market. That is where Wisconsin’s Act 255 Qualified New Business Venture (QNBV) Program comes into action.

WEDC in June 2013 released the 2012 QNBV Annual Report, showing how the program has helped qualified new business ventures leverage tax credits to attract the startup and growth investments they needed. The report also shows the funding gap that early stage companies still face in moving their innovations to market.

The WEDC-managed QNBV program provides accredited equity investors a 25 percent income tax credit on the amounts they invest in qualified companies. A QNBV-certified company has the potential to create new innovative solutions, to increase capital investment and to create jobs in Wisconsin.

“The report demonstrates that the QNBV program continues to be successful at helping innovative companies attract angel funding and venture capital investment from the critical early seed stage through the growth stage,” said Lisa Johnson, vice president of Entrepreneurship and Innovation for WEDC. “An increasing number of high-tech Wisconsin companies are pursuing certification and attracting significant amounts of private capital to advance their business growth.”

2012 Program Highlights

  • 44 new companies QNBV-certified
  • 160 total companies currently in the program
  • 63 companies received investments that qualified for QNBV credits
  • $12.1 million in tax credits verified for $48.4 million that was invested by angel and venture capital investors in 63 companies
  • $201.8 million in other private investments and grants made in a total of 107 certified companies ($164.7 million in private investment and $37.2 million in grants)

2005-2012 Program Highlights

  • 237 companies certified for QNBV status
  • $58.8 million in tax credits verified for the $235.2 million qualified investments by angel and venture capital investors
  • $916.1 million in total funding attracted by 237 companies since 2005

Filing an Investment Gap

Early stage companies still face a funding gap, according to the report, mainly when companies are pre-revenue and unable to secure traditional financing options. The certified companies indicated to WEDC that their anticipated financial need for 2012 was $372.4 million, leaving a funding gap of more than $170 million.

A key focus of the QNBV program is on companies needing to attract angel funding during the highest risk periods where cash flow is imperative.

“The QNBV program with angel investor tax credits is a valuable program. While it will never be a reason to invest in a company without solid fundamentals, my belief is that it will generally mean a larger investment. This helps startup entrepreneurs hit their funding targets sooner with fewer investors, saving time to work on the business,” said Pete Marsnik, manager of the Chippewa Valley Angel Investors Network.

At the end of 2012, the Chippewa Valley Angel Investment Network had more than $4 million invested in nine ventures based in Wisconsin and Minnesota. One has had a positive exit, while another is no longer operating. Five of the ventures are Wisconsin QNBVs, representing a total investment of about $1.9 million.

Leveraging Investment in Wisconsin Businesses

Since the program’s inception in 2005, 237 companies have been certified, and WEDC has verified $58.8 million in tax credits based on $235.2 million in qualified investment. Over that time, these companies have brought in more than half of a billion dollars in additional outside investment and $113.2 million in grant funding, bringing the total amount of funding generated to more than $916 million.

“The ability to offer tax credits to our Wisconsin investors was critical for us to successfully reach our goals during this latest round of fundraising. In our experience, angel investors in Wisconsin like the idea of supporting the local startup community. At the same time, the tax credits provide that extra bit of incentive to keep good investment dollars in the state,” said Ane Ohm, HarQen’s president.

HarQen was certified as a QNBV in 2009. In 2012, HarQen LLC, based in Milwaukee, Wis., closed the final leg of its third fundraising round, raising $4.3 million in venture funding. This brings to more than $7 million the amount that the company has raised from outside investors.

Jobs from Early Stage Companies

The companies enrolled in the QNBV Program provide jobs with average wages nearly three times the average Wisconsin per capita wage. These high-paying jobs provide opportunities for Wisconsin’s skilled workforce and lead to a more productive and resilient economy.

WEDC said the QNBV portfolio of companies created 170 net new full-time and 40 part-time jobs in 2012, for a total of 1,102 full-time and 220 part-time positions. The average full-time salary of these jobs is $76,500, with a total estimated payroll of more than $84 million.

“Whenever you make an investment to grow a business, you are taking a big risk in building production capacity and a workforce. The QNBV program helped mitigate that risk,” said Tom Fotsch, chief operating officer of Embedtek.

Embedtek, Hartland, Wis., designs and manufactures embedded computers and integrated display solutions for original equipment manufacturers. The company grew from 23 to 36 full-time employees in 2012 and expects its workforce to exceed 50 by the end of 2013. Embedtek had nine employees at the beginning of 2010, the year it obtained QNBV status.

(July 2013)