Decision time
Posted on May 6th, 2009 – 1:12 PMBy Thomas Lee
Not so subtle message to Gov. Tim Pawlenty and state legislators:
TIME TO PUT UP OR SHUT UP.
Maybe I’m just little cranky today (gorging myself all night on Dancing with the Stars, Americal Idol, and the Red Sox/Yankees game will do that to you) but seriously, Minnesota is looking more foolish by the second.
VitalMedix, a promising local start-up that is developing a hemmoragic shock drug that keeps you alive even when you lose prodigious amounts of blood, will likely move to Wisconsin because the company can’t find enough angel investors to fund its studies.
What does this have to do with the good folks in St. Paul? Thanks to its generous early stage investment tax credits, Wisconsin boasts considerably more angel investors than Minnesota, a fact that may prove too tempting for Minnesota start-ups like VitalMedix who are struggling to raise money from hometown investors.
What does have Minnesota have to offer by comparison? A one hour legislative debate on whether cocoa bean mulch is dangerous to dogs.
The year started off promisingly. After years of sitting on the sidelines, Gov. Pawlenty proposed a four year, $20 million tax credit for investment in regional investment funds and even called a press conference to support it.
Sure, it contained unnecessary restrictions, or as I call it, shameless political pandering, (50 percent of credits to green start-ups. No more than 3 funds may serve more than 15 counties. No more than 5 funds may invest in businesses in the metro area), but heck, at this point, we’ll take anything from the man.
But true to form, the momentum has disappeared faster than you can recession. The credits are included in the Senate tax bill but not the House and there’s no guarantee that they will see the light of day.
Of course one can argue that cash-strapped state, which is facing a $5 billion black hole of a budget, can’t afford the credits. But the state didn’t do anything even when we had money. So if not now, then when?
VitalMedix would love to know. Like many start-ups, VitalMedix is struggling to raise cash. But what makes this particular company so important? Well, for one thing, the company recently spun out from the University of Minnesota, meaning YOUR TAX DOLLARS helped create this start-up.
More importantly, VitalMedix has developed a potential blockbuster drug and that’s not just my opinion. The drug keep patients suffering from catastrophic injuries (gun shot wounds, car accidents) alive long enough to reach a hospital. The company may yet fail but that’s the nature of venture capital: high risk, high reward.
People, including many in the legislature, like to rag on the U’s Office of Technology Commercialization. And not without some justification. For years, the U has done a lousy job turning its research into successful, viable companies. But thanks to hard work of Tim Mulcahy, Doug Johnson and Jay Schrankler, the school has actually produced a company with real prospects. And now we’re going to see it leave for Wisconsin?
Of course, there’s always the naysayers who say venture money always finds good companies. In other words, VitalMedix’s inability to get funding probably means it’s not worth funding.
Oh please.
Frankly, that argument is getting a little bit tiresome. Yes, VC always flows to good companies. But where is that VC coming from? Certaintly not Minnesota, where investors are not interested in funding anything that doesn’t have to do with an implantable cardiac device. There’s plenty of VC firms on the coast that love biotech. Problem is, they prefer companies move to their regions. Because VitalMedix is a U start-up, the company has tried very hard to find local investors so it can remain a Minnesota company.
How is Minnesota supposed to develop a biotech/drug industry when there’s no one willing to finance these start-ups? And believe me folks, with all due respect to the Earl Bakkens of this world, the future of medical technology is biotech or at least a combination of biologics and medical devices.
Even if a Minnesota investment tax credit becomes law, there’s no gurantee VitalMedix won’t still move to Wisconsin. But shouldn’t we at least make their decisions a little more difficult?
6 Responses to "Decision time"
“But where is that VC coming from? Certaintly not Minnesota…Problem is, they prefer companies move to their regions”
Cranky or not, I’m not sure how the person who reported a BILLION dollars in VC is supposed to be headed to Elk Run (southern MN) can make this claim.
Perhaps VitalMedix needs to make some campaign contributions - like the Elk Run developers did?
It seems likely those contributions have helped the Elk Run developer lobby for millions in taxpayer funding? The legislature has even passed, as part of a larger bill a resolution that allows the state to pay 2 million for RESIDENTIAL development.
[http://news.postbulletin.com/newsmanager/templates/localnews_story.asp?z=16&a=398108 ]
Also, while Angel investors may be more abundant in Wisconsin, the Tax rates in that state are not that different than MN. In addition, unlike MN they have a democatic governor, house, senate and will likely push through some of the >30 proposed tax increases - including medical records taxes, capital gains taxes, hospital taxes and are planning to add a new upper income tax bracket.
The state has also lost a number of rather large employers to southern states or overseas where wages and taxes were noted as the reason for moving.
Anon2, do you really believe that $1 billion will just suddenly appear overnight? I reported that Burrill is looking to raise $1 billion. He did not give a time frame. Plus Burill is not from Minnesota. He’s from San Francisco. It would be nice to see homegrown investors because they are more likely to keep their companies local.Other than Burrill, who are the investors that are funding biotech startups in Minnesota? Can you name any?
Anon,
If the state can make a 4 million dollar investment (roughly what they have put into elk run) to secure a 1 billion private investment…well…that’s pretty good:_)
My comments weren’t meant to offend and I apologize if they did.
Thomas your comments suggest that VC must come from MN investors for new MN companies. But how do you explain Elk Run then? Obviously the developer is from California and apparently is looking to lure companies to MN with a pot of VC? Why not do a story on what local/national experts think about that strategy and if it’s better than a local VC approach?
Further, if you added up all the VC in MN or WI for the past few years would that even equal 1 billion? Can that information be located/reported?
The point that VC has to be raised from MN investors seems logical but it’s like saying the only way the Masters can have high ratings is if Tiger Woods is being challenged - when in actuality all CBS needs is Tiger somewhere on the leaderboard on Sunday and the ratings will be excellent - regardless of what other golfers are doing.
As for $1 billion appearing overnight, I would agree with you. However, your colleagues in Rochester disagree (headline: Burrill’s company has “$1 billion in a pile”) and reported that he can use current money if he wants to.
Regardless of when the money gets to MN that is still a lot of money Angelic or not and to imply no VC is making it’s way to MN isn’t really fair, even if Burrill’s $ is the only VC coming through. And shouldn’t local VC increase as/if Elk Run becomes up and running?
Frank with due respect - the initial money given for this project was prior to Burrill’s reported involvement. The billion wasn’t reported until after ~2 million was given and the infrastructure for the biobusiness park. The next 2 million the developer wants is strictly for residential development. I guess lobbyists and lowly taxpayers can agree to disagree on whether that was a fair amount to secure currently non-existing biobusinesses (not yet reported by Thomas anyway) and money from a developer located in a different state.
I’m tired of states and municipalities competing with each other. I’m pro-business, but I’m tired of states and municipalities competing with each other to woo businesses with one-off deals or narrow tax policy, whether it be for sports teams, film productions, or medical startups. This is a bit too much whine to go with the Wisconsin cheese.
Agree with Bocephus - the larger problem is, what is the appropriate governmental role in encouraging new business, and at what level (local/state/national)? I’d like to see state and national gov’t powers come to the table with a holistic point of view on it for once. It really makes no sense for states like MN and WI to niggle each other to death over a single company. In the grand scheme, this company will either succeed, create a lot of jobs in the U.S. and probably elsewhere too, or it won’t. Doesn’t seem to make a lot of sense to pit states against each other as they are now. As Thomas says, in a better world there would be no question that the company would stay here, but only because conditions tied it to U of MN at the start. VC can flow anywhere - that is becoming more and more true - it may be a little harder to get noticed here but it is very doable.
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