Investing in local tech could help your own tax bill
Oklahoma's tech industry could get a big boost from proposed legislation meant to spur local investment.
Senate Bill 900 would let Oklahomans deduct 60% of an equity investment in a qualified, technology-based company.
Doing so would give investors an incentive to direct their money toward promising new Oklahoma businesses and contributing to the state's growing startup ecosystem, the bill's author said.
“Oklahoma has always had a strong entrepreneurial spirit. That spirit is strong today, but with the state’s low rankings in available venture capital, Oklahoma’s entrepreneurs have less financial support to translate their ideas into successful business ventures," said state Sen. James Leewright, R-Bristow.
The bill easily passed the committee stage and could be heard on the Senate floor this week. Leewright, however, said he wants to amend the legislation to clarify how the program will be managed.
The Oklahoma Tax Commission would be authorized to grant $7.5 million worth of tax deductions each year until 2029, according to the legislation.
Nathaniel Harding, managing partner at Oklahoma City-based Cortado Ventures, said he's seen a growing interest in supporting local entrepreneurship through investing.
"I love that you're seeing that. And you're seeing the trend as well that both the public and private sector is really paying a lot of attention to entrepreneurship as a way to develop the future of our diversified economy," said Harding, who was not involved in introducing Senate Bill 900.
Cortado has made a splash in Oklahoma's investment community since launching its first fund last year. The firm recently announced it raised $20 million for the fund, twice the goal in half the time Harding expected.
The tech-focused firm has inked deals to channel early-stage investment into nine companies. Most of that cash — Harding estimates 80% to 90% — come from Oklahoma investors.
"I think that in other states, and even nationwide, you find that investments in venture capital has a return of $6 for every dollar invested," Harding said.
Cortado has reviewed more than 400 companies, and well over 100 of those were founded in Oklahoma. Harding also said the firm is now starting to investigate and invest in more startups that are younger than the nine-month-old investment firm.
"Some are just not a fit in terms of this stage of development, or the sector, or if they're not technology
focused," he said. "But I think people will be interested to know that there are a tremendous number of opportunities, even within early-stage technology companies, that are on average 18 months old or so."
Neighboring states already offer similar tax incentives, including in Kansas, where investors can claim a credit on 50% of their investment into qualified businesses.
New Mexico gives angel investors a 25% tax credit on investments made in research or manufacturing companies. Louisiana offers a similar tax credit.
Oklahoma's Department of Commerce examined other states' incentive programs and estimates that if Oklahoma had this program in effect, businesses could have seen $8.2 million in additional venture capital funding, Leewright said.
The biggest neighborly competitor for venture capital is Texas. But as a state with no income tax, there is no tax incentive for investing south of the Red River. Oklahoma also boasts a lower cost of living and startup founders have commented on this being a place where new companies can more easily get noticed.
As the bill is written, businesses must apply and be certified by Commerce for their investors to qualify for the tax deduction. It also prohibits investment in a startup that is owned or partially owned by an investor or the investor's family member.
The Oklahoma Senate is also considering similar legislation that would incentivize investments in venture capital and growth funds, qualified special purpose investment vehicles and qualified Oklahoma-based startups.
Senate Bill 915 has passed the committee stage and is eligible for a floor hearing. Unlike Senate Bill 900, this legislation currently has no cap on the amount of investments that can be deducted.
During a committee hearing last month, Leewright said he hopes to work with that bill's author, state Sen. Brent Howard, R-Altus, to "come up with a better product."