States Consider Incentives to Lure Tech Investors

For almost two years, Jonathan M. Cohen spent 40 percent of each workweek trying to lure venture capital to his Rockville biotech company, he said. If 20/20 GeneSystems Inc. could land $3 million or $4 million dollars, the firm could add more scientists and researchers, Cohen reasoned, and perhaps turn out the diagnostic test for lupus it had been developing in two years rather than four.

But in 2004, Cohen quit searching for venture funding. The local investors he encountered often weren’t interested in early-stage companies like his, and many simply wouldn’t consider biotech investments.

Montgomery County Del. Brian J. Feldman (D) has stories like that in mind when he talks about the tax credit bill he plans to introduce in the Maryland legislature. If biotech start-ups can’t attract money to get off the ground, he said, some may languish and others may die.

Feldman’s bill would try to spur more funding by allowing individual investors or individual partners in Maryland venture capital firms to recoup up to 50 percent of their investment in one of the state’s biotechnology start-ups through a state income tax credit. The bill would cap the total credits offered at $12 million a year

But will venture investors — the kings and queens of the high-risk, high-reward model for money management — change their strategy to gain a state tax credit?

"I doubt it," said Mark G. Heesen, president of the National Venture Capital Association. "Their primary responsibility is to their investors, and their investors are saying, ‘We want to you invest in the best deal possible.’ If they are concerned about the tax consequence, maybe they shouldn’t be involved in venture capital."

Ryan M. Brennan, vice president of Advantage Capital Partners, a venture firm based in St. Louis, agrees that tax incentives should never be a main driver for any investor, but he said a program like the one Feldman is proposing could make some funds take a second look at Maryland. That includes his firm, which he said is considering opening an office in the state.

By Ellen McCarthy

Full Story: http://www.washingtonpost.com/wp-dyn/articles/A59273-2005Feb3.html