Indiana's Capital Access Challenge

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If real estate is all about location-location-location, then getting a tech company off the ground is just as often about capital-capital-capital. The right idea, the right team, and the right moment all need to converge in the right space-time tech continuum for a company to succeed, but without the capital needed to execute a promising venture, it can be hard for even the best idea to take flight.

The need for capital exists in every market, from San Francisco to Austin to Boston. But this gap is especially acute here in Central Indiana, a fact reiterated by Powderkeg's recent 2018 Indianapolis Tech Census report. Some of its findings:

  • 54 percent of entrepreneurs responding to the study are bootstrapping their companies
  • 50 percent of respondents say it’s a struggle to raise capital in Indiana
  • 58 percent of investors who responded have 25 percent or less of their investment portfolio comprised of Indy tech companies

And the number one problem holding back the Indy tech community according to participating respondents: funding.

This not just in: It’s tough to raise money here.

That’s the bad news. But it's not "new" news. And a whole host of decision-makers from investors to CEOs to elected officials believe strongly in the Indy tech scene and are looking for ways to improve the funding climate every day.

A prime example is inX, a week-long event centered on Indiana tech entrepreneurialism, innovation, and investment. inX (formerly inX3), co-founded by Clear Object CEO John McDonald and Absolutely Consulting President Kara Kavensky, is a venture-focused event specifically designed to match-make investment-ready companies and start-ups with investment opportunities. This year’s event will take place at the Indianapolis Motor Speedway in September.

Efforts such as TechPoint’s Tailwind program, Elevate Ventures, and the newly-created Next Level Fund are also aiming to improve both access to funds and the connectivity between entrepreneurs and investors. But these lone approaches won’t wholly solve the problem of bringing additional capital to Indiana. So, what else can be done? A few easy and decisive steps can be taken by the legislature and Governor Holcomb’s team in short order to promote immediate and positive change.

The first fix is to make the venture capital investment tax credit refundable. This program provides a 20 percent income tax credit to qualified investors, but the problem with this credit as it currently exists is that it’s non-refundable. This means that the credit only benefits investors that pay Indiana income tax, a fact that shuts out most eligible investors that reside outside the state. By making the credit refundable, an investor would receive the full benefit of the credit whether that investor pays tax in the state or not. And, because the program is already funded and capped, converting VCI to a refundable program will cause no hit on the state budget. To put it in the current vernacular of March Madness, this one’s a layup.

The next solution is to make sure the Next Level Fund doesn't skimp on the needs of the most promising Indiana-based companies. Questions have been raised recently about the extent to which Indiana-based investment opportunities will be a priority with this funding source. It will be critical for those steering the ship to find the right balance between ensuring the viability of the program with the needs it was intended to address.

Lastly, Indiana needs to provide an incentive for investors who successfully exit their Indiana-based ventures to reinvest in other Indiana-based companies. As we approach another state budget session in 2019, the timing is ripe for the public-private partnership collective to develop a strategy around this opportunity and implement it.

By taking these few simple steps, Indy-based tech companies will find the task of raising capital easier. More funding won't turn a bad idea into a good one, but it will help the odds immensely for the state’s most promising companies.

Tim Cook is chief executive officer of KSM Location Advisors.

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