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Iowa Community Based Seed Funds
What is a Community Based Seed Fund?
- Group of individuals pooling their money to create a fund that will invest in start-up or early-stage companies.
- Equity Investment seeking at least a 20% return on investment.
Why invest in a fund?
- A community based seed fund is an economic development tool.
- Iowa needs to attract and retain fast growing companies. Many need additional capital in seed, start-up, second-stage, and later-stage financing.
- Return on your investment.
- Tax credits are available for investors. (20% or 6%)
- Your fund may choose to invest only in local projects. However, if you choose to "network", you will have the opportunity to invest in other projects and partner up with other funds in Iowa. The benefit of this arrangement is to leverage investment dollars and provide more opportunities for investors to receive a greater return on investment. A statewide group of investors is forming an association to share deal flow and due diligence.
- As a general rule community based seed fundfunds look for a 40-50% return on seed and start-up financing, 30-40% on second stage financing and 25-30% on later stage financing.
- See a listing of Equity Funds in Iowa.
Who can invest in a fund?
- Private individuals, qualified banks, trusts, and corporations. Typical investments in the funds are $30,000-$100,000.
- Owners in invested companies with less than 70% ownership.
- For investments made on or after January 1, 2004, the tax credit for an equity investment in a qualifying business can be claimed by a partnership, limited liability company, S corporation or other estates or trusts electing to have income tax directly to the individual.
When is the best time to create a fund in Iowa?
- NOW!
- Currently, there is a 20% Iowa tax credit available to those funds investing 33% of the fund into qualified Iowa businesses.
- Over $8 million in tax credits are available. Credits may be carried forward up to 5 years.
- There is also a 6% Iowa tax credit available for venture capital investing.
- For more information on the tax credits and qualified businesses: Department of Revenue [www.state.ia.us/tax/business/VentureCapital.html].
How do we set up a fund?
- The Iowa Department of Economic Development provides legal template to set up your fund. This approach helps minimize legal costs for setting up your LLC.
- There are willing mentors in Iowa to assist in the process.
- Contact Doug Lewis, 515.281.0142, at the Iowa Department of Economic Development for a copy of the template and to set up a local meeting.
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