Andrew Gibson, CEO of Chester-based AeroCision, picked a tough year to reinvigorate his company.
“In 2008, we made significant investments in technology and product development,” he said of his business, which produces machine turbine engine parts. By the end of that year, Connecticut’s manufacturing sector shed 2,800 jobs, unemployment was climbing, and foreclosure filings in the state for October were up 136 percent, the highest increase in the nation.
Access to capital was also an issue.
Luckily, Gibson’s company survived the downturn and is now preparing for another major growth spurt over the next two years. They’ll be adding employees and investing further in new technology.
A big reason for the expansion: a $1.25 million investment from the state’s insurance reinvestment tax credit program, a 10-year, $200 million initiative designed to infuse capital into Connecticut small businesses with strong growth potential.
“The goal of this program is to attract private investment into Connecticut to grow and retain jobs in the state,” said Liddy Karter, managing director of Stamford-based Enhanced Capital Connecticut, one of three fund managers certified by the state to invest the program’s funds in eligible small businesses.
The insurance reinvestment tax credit program was created in 2010 and provides incentives for insurance companies that invest in high-growth businesses through state-registered fund managers. Insurers that pay premium taxes in the state have been eligible to participate. In exchange for their investment, insurers get a dollar-for-dollar tax credit on premium taxes equal to the amount they invested.
Nearly 50 insurers have participated and the program has dispersed $106 million, said Michael Lettieri, the Department of Economic and Community Development’s community development director, who created the program’s guidelines.
On a national level, several states — including California, Texas and New York — have similar state venture capital programs tied to key growth industries, according to a U.S. Treasury report on state venture capital programs. With constrained state budgets over the past several years, many states have found small business tax credit initiatives an effective way to provide capital to high-potential businesses still struggling to satisfy stringent loan requirements through traditional bank financing.
The state’s insurance tax credit funds have been invested in manufacturing, information technology, health care, business services and green technology companies.
To be eligible for funding, a business needs to have fewer than 250 employees and less than $10 million in net income, Karter said.
Additionally, at least 3 percent of funds must be invested as pre-seed money in early-stage companies and 25 percent of funds directed towards green technology, Karter said.
Since administering their first investment in November 2011, Enhanced Capital has distributed nearly 60 percent of the $70 million it manages through the program.
“We’ve invested in nearly 40 companies so far, which have retained and created hundreds of jobs in the state,” Karter said.
Karter estimates that the average investment from Enhanced Capital is nearly $1 million, ranging from $75,000 for pre-seed investments to $5 million for larger, more established companies.
As managing director of Avon-based Ironwood Capital — another state-approved fund manager — Victor Budnick said he likes the protections that the insurance tax credit program has for taxpayers.
“The risk [through this program] is really absorbed by the insurance company investors and the fund managers,” he said. “There’s really no risk of loss for the state or taxpayers.”
To date, Ironwood and its co-manager Advantage Capital — which combined manage $93 million in tax credit funds — have invested almost 60 percent of its money in 30 companies, including several startups.
“We fund the full spectrum — from debt investments to equity investments,” Budnick said. “Anything that helps eligible businesses with job creation and retention.”
And those investments, in turn, are sparking economic activity as companies expand their capacity.
AeroCision’s Gibson said his company booked $4 million in new parts business last year and is targeting $8 million of new business by 2017.
“Without these funds, we’d only be able to fund about 60 percent of the growth we have today,” Gibson said. “It’s the ultimate in public/private partnerships.”
