HF 2322

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:01am

A bill for an act
relating to economic development; creating the Minnesota Venture Network
Board to provide tax credits to stimulate venture capital investment in Minnesota;
creating the Minnesota capital fund to facilitate investments in venture funds;
creating the Minnesota venture network trust as a public trust to utilize net profits
of the Minnesota capital fund; providing a contingent tax credit for investment
commitment in the Minnesota capital fund; amending Minnesota Statutes 2008,
section 290.06, by adding a subdivision; proposing coding for new law in
Minnesota Statutes, chapter 297I; proposing coding for new law as Minnesota
Statutes, chapter 116W.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116W.01] CITATION.
new text end

new text begin This chapter may be cited as the "Minnesota Venture Network Act."
new text end

Sec. 2.

new text begin [116W.02] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Applicability. new text end

new text begin The definitions in this section apply to this chapter.
new text end

new text begin Subd. 2. new text end

new text begin Board. new text end

new text begin "Board" means the Minnesota Venture Network Board created
under section 116W.03.
new text end

new text begin Subd. 3. new text end

new text begin Certificate. new text end

new text begin "Certificate" means a contract between the board and an
investor making a commitment to invest in the Minnesota capital fund, setting forth the
amount, terms, and conditions pursuant to which a tax credit is available and issued to the
investor.
new text end

new text begin Subd. 4. new text end

new text begin Minnesota capital fund. new text end

new text begin "Minnesota capital fund" or "the fund" means a
private, for profit entity formed by the Minnesota Venture Network Board under section
116W.04.
new text end

new text begin Subd. 5. new text end

new text begin Minnesota venture network trust. new text end

new text begin "Minnesota venture network trust" or
"the trust" means a state beneficiary public trust formed under section 116W.05.
new text end

new text begin Subd. 6. new text end

new text begin Person. new text end

new text begin "Person" means any natural person, sole proprietorship,
corporation, S corporation, partnership, limited liability company, or trust. Person also
means any insurer as defined in section 60A.02, subdivision 4, that contributes designated
capital under section 116W.04.
new text end

new text begin Subd. 7. new text end

new text begin Tax credit. new text end

new text begin "Tax credit" means a contingent tax credit issued by the board
under section 116W.06 that is available as a credit against the tax imposed by chapters
290 and 297I.
new text end

Sec. 3.

new text begin [116W.03] MINNESOTA VENTURE NETWORK BOARD; MEMBERS;
POWERS.
new text end

new text begin Subdivision 1. new text end

new text begin Creation. new text end

new text begin The Minnesota Venture Network Board is created and
governed by section 15.0575, except as provided in this chapter.
new text end

new text begin Subd. 2. new text end

new text begin Members. new text end

new text begin The board shall consist of five voting members and two
nonvoting advisory members. The chair of the board is one of the voting members.
The five voting members, including the chair, shall be appointed by the governor and
confirmed by the senate under section 15.066.
new text end

new text begin (a) The five voting members are appointed to five-year staggered terms that are
structured to allow the term of one member to expire each year. Vacancies are filled in the
same manner as the appointment of the original members. The governor shall appoint
voting members based on demonstrated expertise in one or more of the following areas:
new text end

new text begin (1) the risk and reward analysis of making and financing multimillion dollar asset
acquisitions and divestitures for their own account or on behalf of a private sector
employer;
new text end

new text begin (2) the supervision of others who make the types of decisions in clause (1);
new text end

new text begin (3) the supervision of fiduciary management of investment funds;
new text end

new text begin (4) the management of venture capital funds; or
new text end

new text begin (5) the management and administration of tax credit allocation programs.
new text end

new text begin (b) The two nonvoting advisory members are the commissioner of employment and
economic development and the commissioner of revenue.
new text end

new text begin Subd. 3. new text end

new text begin Meetings. new text end

new text begin Meetings are convened at the call of the chair as needed. Board
meetings are subject to chapter 13D.
new text end

new text begin Subd. 4. new text end

new text begin Closed meetings; recording. new text end

new text begin The board may, by a majority vote in a
public meeting, decide to hold a closed meeting for purposes of discussing data described
in subdivision 5 or security information, trade secret information, or labor relations
information, as defined in section 13.37, subdivision 1. The time and place of the closed
meeting must be announced at the public meeting. A written roll of members present
at the closed meeting must be made available to the public after the closed meeting.
The proceedings of a closed meeting must be tape recorded. The data on the tape are
nonpublic data or private data on individuals as defined in section 13.02, subdivision 9
or 12, whichever is applicable.
new text end

new text begin Subd. 5. new text end

new text begin Application and investigative data. new text end

new text begin Financial data, statistics, and
information furnished to the board in connection with assistance or proposed assistance,
including credit reports, financial statements, statements of net worth, income tax returns,
either personal or corporate, and any other business and personal financial records are
private data with regard to data on individuals under section 13.02, subdivision 12, or as
nonpublic data with regard to data not on individuals under section 13.02, subdivision 9.
new text end

new text begin Subd. 6. new text end

new text begin Conflict of interest. new text end

new text begin A member of the board may not participate in
or vote on a decision of the board relating to an organization in which the director has
either a direct or indirect financial interest or a conflict of interest as described in section
10A.07. Board members shall not have an interest in a person to whom a tax credit is
allocated and issued by the board or an interest in a person that receives an investment
from any entity organized pursuant to this chapter or that receives an investment from
an investee of the entity.
new text end

new text begin Subd. 7. new text end

new text begin Powers. new text end

new text begin (a) Pursuant to section 116W.04, the board may issue certificates
and related tax credits to an investor making a capital commitment to the Minnesota
capital fund.
new text end

new text begin (b) The board shall, in cooperation with the Department of Revenue and pursuant to
section 116W.08, establish criteria and procedures for the allocation, transfer, and issuance
of tax credits by means of certificates issued by the board. The criteria must include the
contingencies that must be met for the tax credits evidenced by a certificate to be verified
by the board redeemable by an investor making a capital commitment to the Minnesota
capital fund or any subsequent transferee. The contingencies to redemption must be tied
to the scheduled rates of return and scheduled redemptions of interests committed to be
purchased by the investor in the Minnesota capital fund. The criteria and procedures
must also relate to the transfer of a certificate and related tax credit by the investor and
any subsequent transferee.
new text end

new text begin (c) The board shall organize the Minnesota capital fund pursuant to section 116W.04.
new text end

new text begin (d) The board may charge a placement fee to the Minnesota capital fund with respect
to the issuance of any certificate and related tax credits to an investor in the Minnesota
capital fund. The fee charged pays only for reasonable and necessary costs of the board
and must not exceed one-tenth of one percent of the capital committed by the investor to
the Minnesota capital fund.
new text end

new text begin (e) No investment by the Minnesota capital fund may be made without board
approval. The board shall not approve any investment unless it has received a positive
recommendation for the investment by the fund manager of the Minnesota capital fund.
new text end

new text begin (f) The board shall accept a certificate submitted to the board by a Minnesota capital
fund investor or any transferee and shall calculate the amount of the allowable tax credit
pursuant to the procedure in section 116W.06.
new text end

new text begin (g) The board shall not hire employees. The board shall contract with an entity
specified in section 116W.04, subdivision 3, paragraph (a), for staff support provided it
reimburses the entity from the board's earnings once received.
new text end

new text begin Subd. 8. new text end

new text begin Audits. new text end

new text begin The board is subject to the auditing requirements of sections
3.971 and 3.972.
new text end

new text begin Subd. 9. new text end

new text begin Annual reports. new text end

new text begin The board shall submit annual reports to the governor
and the legislature. Each annual report must include a copy of the audit of the Minnesota
capital fund, report on the progress of the Minnesota capital fund in implementing its
investment plan, and describe any verification or redemption of any certificate issued
pursuant to this chapter, but must not identify any specific taxpayer who has redeemed a
certificate.
new text end

new text begin Subd. 10. new text end

new text begin Rulemaking authority. new text end

new text begin The board shall adopt rules pursuant to chapter
14 necessary to administer the duties of the board.
new text end

new text begin Subd. 11. new text end

new text begin Exemption from investment advisor registration. new text end

new text begin Members, officers,
directors, managers, agents, and contractors of the board are exempt from investment
advisor registration requirements under chapter 80A.
new text end

Sec. 4.

new text begin [116W.04] MINNESOTA CAPITAL FUND.
new text end

new text begin Subdivision 1. new text end

new text begin Establishment of fund. new text end

new text begin The Minnesota Venture Network Board
shall, in concert with the organizing entity pursuant to subdivision 4, organize the
Minnesota capital fund as a private, for profit entity, under other law. The fund must be
managed by a fund manager pursuant to subdivision 4.
new text end

new text begin Subd. 2. new text end

new text begin Fund objectives. new text end

new text begin The following are the objectives for the Minnesota
capital fund and are based on the date when the fund is established:
new text end

new text begin (1) within five years, commit to invest in ten venture capital funds;
new text end

new text begin (2) within five years, commit to invest in ten angel groups;
new text end

new text begin (3) within ten years, have 20 venture capital funds active in the state;
new text end

new text begin (4) within ten years, have 20 angel groups active in the state;
new text end

new text begin (5) within 15 years, have $2 of investment and co-investment in Minnesota
companies by investee venture capital funds and their syndicates for every $1 invested
by the Minnesota capital fund;
new text end

new text begin (6) within 15 years, have $3 of investment and co-investment in Minnesota
companies by investee angel groups and their co-investors for every $1 invested by the
Minnesota capital fund's angel fund network;
new text end

new text begin (7) within 20 years, have an enhanced and sustainable venture capital community
with a history of successfully financing venture capital opportunities throughout
Minnesota across multiple markets; and
new text end

new text begin (8) within 20 years, have an enhanced and sustainable angel group network and
statewide pool with a history of successfully financing risk capital opportunities, including
seed capital, throughout Minnesota across multiple markets.
new text end

new text begin Subd. 3. new text end

new text begin Fund investments; requirements. new text end

new text begin (a) The fund shall be authorized to
make investments in private venture capital partnerships or entities in a manner that will
encourage the availability of a wide variety of venture capital in the state, strengthen the
economy of the state, help businesses in Minnesota gain access to sources of capital, help
build a significant, permanent source of capital available to serve the needs of Minnesota
businesses, and accomplish all these benefits in a way that minimizes the redemption
of tax credits.
new text end

new text begin (b) The fund shall principally make investments in venture capital funds managed
by investment managers who have made a commitment to seek equity investments in
businesses located within the state of Minnesota and that have committed to maintain an
active market presence within the state of Minnesota. The investments by the fund shall
be focused principally on partnership interests in private venture capital funds and not
in direct investments in individual businesses. The fund shall invest in venture capital
funds with experienced managers or management teams with demonstrated expertise and
a successful history in the investment of venture capital funds. The fund may invest in
newly created venture capital funds as long as the managers or management teams of the
funds have the experience, expertise, and a successful history in the investment of venture
capital funds described in this paragraph.
new text end

new text begin (c) Notwithstanding the provisions in this subdivision, the fund shall capitalize or
support the capitalization of an angel fund network program that invests in:
new text end

new text begin (1) angel funds that are located in the state of Minnesota and that focus their
investments primarily on portfolio companies that are located within the state of
Minnesota; and
new text end

new text begin (2) direct investments in these Minnesota-based portfolio companies.
new text end

new text begin Subd. 4. new text end

new text begin Powers and duties. new text end

new text begin In addition to the powers pursuant to the statutes under
which the fund is organized, the fund shall have the following powers and duties:
new text end

new text begin (1) the fund shall contract with an operating entity for the raising, investing, and
management of capital by the Minnesota capital fund in accordance with investment
requirements of subdivision 3. The operating entity shall be a Minnesota nonprofit
organization to which investment assets with a book value in excess of $5,000,000 were
transferred pursuant to the authority under section 116O.05, subdivision 4, prior to January
1, 2000, or an entity formed by such a corporation, or the direct successor in interest to
such a corporation;
new text end

new text begin (2) the operating entity shall engage or employ, as a fund manager, a person with
substantial and successful experience in the design, allocation, implementation, and
management of state-sponsored seed and venture capital investment programs and in
capital formation. The Minnesota capital fund shall compensate this person for these
services;
new text end

new text begin (3) the fund may open and manage bank and short-term investment accounts as
deemed necessary by the fund's manager;
new text end

new text begin (4) the fund may expend money to secure investment ratings for investments in
the fund; and
new text end

new text begin (5) the fund shall deposit net profits from the fund in the Minnesota venture network
trust.
new text end

new text begin Subd. 5. new text end

new text begin Audit. new text end

new text begin The fund shall contract with a certified public accounting firm
to do a financial and compliance audit of the fund annually using generally accepted
accounting standards, reporting investment portfolio performance in the aggregate and
not by individual security or investment fund. A copy of this audit must be submitted to
the chairs of the senate Finance and Economic Development and Housing Committees,
and the house of representatives Appropriations and Economic Development Committees.
The fund is subject to the auditing requirements under sections 3.971 and 3.972.
new text end

new text begin Subd. 6. new text end

new text begin Exemption from investment advisor registration. new text end

new text begin Members, officers,
directors, managers, agents, and contractors of the fund shall be exempt from investment
advisor registration requirements under chapter 80A.
new text end

new text begin Subd. 7. new text end

new text begin Termination of Minnesota capital fund. new text end

new text begin Thirty-five years after the
organization of the Minnesota capital fund, the Minnesota Venture Network Board shall,
after the redemption and retirement of all certificates, cause the fund to be liquidated. After
all liabilities are discharged, and any other ownership interests are satisfied, the Minnesota
capital fund shall pay all remaining funds to the Minnesota venture network trust fund.
The Minnesota capital fund shall file a final report with the legislature in accordance with
section 3.195. In addition to the requirements stated in section 3.195, the report shall state
the number of jobs created in the state through the investment program of the fund.
new text end

Sec. 5.

new text begin [116W.05] MINNESOTA VENTURE NETWORK TRUST.
new text end

new text begin Subdivision 1. new text end

new text begin Creation of trust. new text end

new text begin The Minnesota venture network trust is created
as a state beneficiary public trust for the purpose of supporting the mission and work of
the Minnesota capital fund. The members of the board will serve as trustees of the trust.
Consistent with this chapter, the board has the powers of trustees under sections 501B.79
to 501B.82, and other law as necessary to administer and distribute funds in the trust.
new text end

new text begin Subd. 2. new text end

new text begin Trust fund. new text end

new text begin The assets of the Minnesota venture network trust consists
of amounts deposited in the trust under section 116W.04, subdivision 4, clause (5), and
earnings thereon. The board may distribute funds in the trust as stated in subdivision 3.
new text end

new text begin Subd. 3. new text end

new text begin Use of trust funds. new text end

new text begin Trust funds must be used for the following purposes:
new text end

new text begin (1) to support the mission and work of the fund and the trust;
new text end

new text begin (2) to be used at the board's discretion in lieu of the sale or redemption of tax credits;
new text end

new text begin (3) to develop and support ancillary programs complementary to the work of the
fund; or
new text end

new text begin (4) upon termination of the Minnesota capital fund, the trustees must pay any
remaining assets of the fund to the commissioner of revenue, who must deposit them in
the state treasury and credit them to the general fund.
new text end

Sec. 6.

new text begin [116W.06] CERTIFICATES AND TAX CREDITS.
new text end

new text begin Subdivision 1. new text end

new text begin Issuance of certificate and related tax credits. new text end

new text begin (a) The board
may issue certificates and related tax credits to an investor who commits to make an
investment in the Minnesota capital fund and whose investment commitment is accepted
by the board. A certificate shall have a specific maturity date or dates designated by the
board and shall be redeemable only in accordance with the contingencies reflected on the
certificate or incorporated therein by reference. A certificate shall indicate the amount of
the tax credit designated by the board, and a certificate and the related tax credit shall be
freely transferable by the investor and by subsequent transferees.
new text end

new text begin (b) The amount of tax credits that may be redeemed shall be limited to an amount
equivalent to any difference between the scheduled aggregate rate of return to the investor
from the Minnesota capital fund at rates of return authorized by the board and the
aggregate actual return received by the investor from the Minnesota capital fund of capital
and return on the capital. The rates shall be determined pursuant to a formula stipulated
in the certificate or incorporated by reference. The certificate shall state the calculation
formula for determining the amount of tax credits that may be redeemed.
new text end

new text begin Subd. 2. new text end

new text begin Amount of tax credits allowed. new text end

new text begin (a) The amount of tax credits issued by
the board shall not exceed $50,000,000 in any fiscal year, beginning in fiscal year 2012,
and the cumulative amount shall not exceed an aggregate total of $500,000,000 during
the existence of the Minnesota capital fund. The aggregate total shall not include any
certificates and related tax credits that have expired. The aggregate total shall include
certificates and related tax credits that have been redeemed.
new text end

new text begin (b) In determining the maximum annual and aggregate totals, the board shall use the
cumulative amount of scheduled aggregate returns on certificates issued by the board to
each investor in the Minnesota capital fund. Certificates and related tax credits that have
expired shall not be included in the totals. Certificates and related tax credits that have
been redeemed shall be included only to the extent of verified tax credits actually allowed.
new text end

new text begin Subd. 3. new text end

new text begin Redemption of tax credits; in lieu of payments; carryover provision.
new text end

new text begin (a) Within 15 days after certification by the Minnesota capital fund to the board that the
contingencies for redemption of tax credits evidenced by a certificate have been satisfied,
the board shall issue to the holder of such certificate a verification setting forth:
new text end

new text begin (1) the amount of verified tax credits evidenced by such certificate, as well as the
manner by which the maximum amount may be increased or decreased; and
new text end

new text begin (2) the tax year in which the verified tax credits may first be claimed and redeemed.
new text end

new text begin (b) A holder of a certificate with a verified tax credit is allowed a credit against the
tax imposed by chapters 290 and 297I. A verified tax credit may be redeemed by claiming
the amount of the verified tax credit in lieu of making estimated or regular tax payments.
If the credit provided under this subdivision exceeds the tax liability of the holder for the
taxable year, the excess amount of the credit may be carried over to each of the seven
taxable years succeeding the taxable year. The entire amount of the excess unused credit
shall be carried to the earliest taxable year to which the amount may be carried and then to
each successive year to which the credit may be carried. No credit may be carried to a
taxable year more than seven years after the taxable year in which the credit was earned.
new text end

new text begin (c) In the case of verified tax credits held by a pass-through entity, an individual
partner, shareholder, or member of the pass-through entity may claim or redeem the tax
credit of a partnership, S corporation, limited liability, estate, or trust. The amount claimed
or redeemed by the individual shall be based upon the pro rata share of the individual's
earnings attributable to the pass-through entity.
new text end

new text begin Subd. 4. new text end

new text begin Registration and verification system. new text end

new text begin The board shall, in conjunction
with the Department of Revenue, develop a system for:
new text end

new text begin (1) registration of the issuance and transfer of any certificate and related tax credit
issued pursuant to this section;
new text end

new text begin (2) verification of tax credits pursuant to this section; and
new text end

new text begin (3) registration of the issuance and transfer of any verification of tax credits issued
by the board pursuant to this section.
new text end

new text begin Subd. 5. new text end

new text begin Certificate or tax credit not a security. new text end

new text begin A certificate or tax credit issued
or transferred pursuant to this chapter shall not be a security as defined under section
336.8-102 of the Uniform Commercial Code.
new text end

new text begin Subd. 6. new text end

new text begin Use as collateral. new text end

new text begin A certificate or tax credit issued or transferred pursuant
to this section may be used as collateral, and a security interest in the certificate or tax
credit may be granted and perfected in the manner provided in Article 9 of the Uniform
Commercial Code, under sections 336.9-101 to 336.9-709.
new text end

Sec. 7.

new text begin [116W.07] POWERS AND EFFECTIVENESS.
new text end

new text begin Sections 116W.01 to 116W.06 shall not be construed as a restriction or limitation
upon any power that the board might otherwise have under any other law of this state and
the provisions of the Minnesota Venture Network Act are cumulative to those powers.
The Minnesota Venture Network Act shall be construed to provide a complete, additional,
and alternative method for performing the duties authorized and shall be regarded as
supplemental and additional to the powers conferred by any other law. The following must
not compromise, diminish, invalidate, or affect the provisions of any contract entered into
by the board, or the Minnesota capital fund:
new text end

new text begin (1) new text end new text begin the level, timing, or degree of success of the Minnesota capital fund or the
investment funds in which the Minnesota capital fund invests; or
new text end

new text begin (2) the extent to which the investment funds are invested in Minnesota venture
capital projects or are successful in accomplishing any economic development objectives.
new text end

Sec. 8.

new text begin [116W.08] PERMISSIBLE INVESTMENTS.
new text end

new text begin Investments by investors in the Minnesota capital fund are permissible investments
for state-chartered banks, credit unions, and domestic insurance companies under
applicable state laws.
new text end

Sec. 9.

new text begin [116W.09] ENFORCEMENT.
new text end

new text begin The attorney general may enforce the provisions of this chapter and conduct any
investigations necessary for such enforcement.
new text end

Sec. 10.

Minnesota Statutes 2008, section 290.06, is amended by adding a subdivision
to read:

new text begin Subd. 36. new text end

new text begin Minnesota capital fund credit. new text end

new text begin A person, as defined under section
116W.02, subdivision 6, who invests in the Minnesota capital fund is allowed a credit as
determined under section 116W.06 against the tax imposed under this chapter.
new text end

Sec. 11.

new text begin [297I.23] MINNESOTA CAPITAL FUND CREDIT.
new text end

new text begin A person, as defined under section 116W.02, subdivision 6, who invests in the
Minnesota capital fund is allowed a credit as determined under section 116W.06 against
the tax imposed under this chapter.
new text end

Sec. 12. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 to 5 and 7 to 9 are effective the day following final enactment. Sections
6, 10, and 11 are effective July 1, 2011.
new text end