Lawmakers may be latest angels to invest in startup program -
Published Tuesday, March 5, 2013 at 1:00 am / Updated at 1:09 pm
investing in success
Lawmakers may be latest angels to invest in startup program

LINCOLN — “Angels” persuaded Paul Jarrett and his wife, Stephanie, to move back to Nebraska to launch a company that mails sample vitamins and dietary supplements to people.

Those angels were investors who, encouraged by a two-year-old state tax credit, were willing to sink several hundred thousand dollars into the Jarretts' startup company, Bulu Box.

“It was the tipping point to get us to move from San Francisco to Lincoln,” Paul Jarrett said. “It was the catalyst.”

Bulu Box now employs eight full-time workers and four college interns in a historic brick building in Lincoln's trendy Haymarket area.

This year, state lawmakers are being asked to expand the Nebraska Angel Investment Tax Credit Act in hopes of writing more success stories.

The tax credit, passed in 2011, allows investors who chip in at least $25,000 to obtain a state refund for part of their investment in qualified Nebraska-based startup companies with fewer than 25 employees.

Such investors are called angels because they seemingly swoop in out of nowhere to help entrepreneurs who have a marketable product but lack the money to develop it.

The angel investment act was one of Gov. Dave Heineman's talent and innovation initiatives in 2011. A shortage of capital for high-tech startup companies was identified as a weakness in a 2010 study of Nebraska's economic development efforts.

The governor had sought $5 million a year for the program, but cautious state lawmakers, noting that 75 percent of such startups fail, trimmed it to $3 million a year in tax credits.

But now there are two proposals in the Nebraska Legislature to increase the amount of money available for such investments.

The reason is that demand for credits has outpaced what the state has allocated.

In 2011, 74 applicants sought nearly $5 million in credits for investments. Last year, 138 applicants sought about $4 million.

Interest is even greater this year, with about $2 million of the $3 million fund already earmarked by March 1, according to Joseph Lauber, who coordinates the program for the Nebraska Department of Economic Development.

State Sen. Pete Pirsch of Omaha has introduced a bill to increase the program's funding by $2 million a year, to $5 million. He said he doesn't want Nebraska to go “halfway” to help startup companies.

“It's kind of like the invasion of Normandy: If you're going to do it, do it,” Pirsch said.

The state angel tax credit, Lauber said, “removes some of the risk of investing in some of these early-stage companies.”

“And it's an attractive tool for these companies when they go out seeking investors,” he said.

Paul Jarrett of Bulu Box said he had planned to launch the company in California, until a former landlord of his in Lincoln, his hometown, suggested that he pitch his idea to the Nebraska Angels, a group of angel investors.

They liked his business idea and invested a significant portion of the $550,000 that the Jarretts raised to start the company. Bulu Box signs up subscribers who pay $10 a month for monthly shipments of vitamin and supplement samples. The Bulu Box of products allows customers to try a new vitamin or weight-loss supplement at a low cost before deciding whether to buy it.

Customers appear to like the idea. Bulu Box subscriptions are up 75 percent since the first of the year, Paul Jarrett said.

Jarrett, 31, said he and his wife didn't have the money to create their dream company on their own, and the tax credit made it easier for the Nebraska Angels to take a risk on their venture. The lower cost of doing business in Nebraska, as well as the development occurring in Lincoln's Haymarket area, including a new sports and concert arena, sealed the deal.

“Why not work in a cost-effective place that has a lot of cool things happening?” Paul Jarrett asked.

PitchBurner, which creates software used by universities and other organizations to conduct business contests, is another angel investment act success story.

The company, a spinoff from the software innovation company i2rd of Lincoln, has six employees and is run by 23-year-old Ethan Meyer.

“You hear a lot of talk about brain drain and 'How do we keep young, talented people here?' It's this kind of innovation,” said Joseph Knecht, managing director of i2rd, which has three other startups looking for investors.

Not all angel investments turn into initial success stories like Bulu Box and PitchBurner. However, angels have been credited with helping launch some of this generation's most successful high-tech companies, including Google, Yahoo and Facebook.

In addition to Pirsch's proposal, Legislative Bill 281, Sen. Tom Carlson of Holdrege has introduced a measure to increase funding for angel investment credits. His proposal, LB 475 would increase funding to $4 million a year, a $1 million increase.

During a public hearing last month on LB 281, members of the Legislature's Revenue Committee asked for more information.

Columbus Sen. Paul Schumacher, the committee's vice chairman, said applications for the money don't necessarily mean that the program is successful in creating jobs or long-lasting companies. The tax incentives offered under the angel investment act, he added, are very generous. The state is paying back 35 percent to 40 percent of an investment.

Lauber, the state economic development official, said reports that are due in July will more fully detail how many jobs have been created. But so far, he said, the program has sparked $16.6 million of investment in 43 companies.

Complicating any changes in the angel investment act is the larger debate over state tax policy at the State Capitol.

The governor this year proposed a dramatic tax shift: the elimination of all state income taxes and a broadening of the state sales tax base by taxing several types of now-tax-exempt purchases.

Although the governor's idea was shot down as impractical and damaging to business, it has spawned a comprehensive review of state tax policy. One matter under review is whether the Legislature hands out too many tax incentives on a piecemeal basis rather than a coordinated basis. Another question: What is the cost-benefit analysis of such tax breaks?

Some have questioned whether new business incentives, such as bolstering the angel investment program or granting tax credits for wind energy, should be put on hold pending the outcome of the tax study.

Kearney Sen. Galen Hadley, chairman of the Revenue Committee, has said that if necessary, the committee will consider advancing new tax incentives during this year's legislative session, although the tax study won't be completed until December.

But, he added, “we don't want to look foolish by passing a bill this year and rescinding it next year.”

Contact the writer: 402-473-9584,

More Legislature coverage, resources

Meet your senators

• Map: Find your senator

More Legislature coverage

The State Line: World-Herald Legislature blog

Contact the writer: Paul Hammel    |   402-473-9584    |  

Paul covers state government and affiliated issues and helps coordinate the same.

Lori Jenkins, charged as accessory in 4 murders, waives speedy trial
Iowa State servers hacked, nearly 30,000 SSNs at risk
New public employee pay data: Douglas, Lancaster, Sarpy Counties, plus utilities
2nd District House race: After 8 terms, Lee Terry knows how D.C. works — and doesn't
Bellevue man is killed at Minnesota dance hall after South Sudanese basketball tourney
Spring corn planting still sputters in Nebraska, Iowa, other key states
Nebraska banking and finance director to retire
19-year-old killed in one-vehicle crash at 72nd & Shirley
Gov. Heineman vetoes bill to ease restrictions on nurse practitioners
U.S. Senate race: State Auditor Mike Foley defends Shane Osborn against ad campaign
Public defender to represent Nikko Jenkins in sentencing
Mid-America Center on track for lower operating loss
Bluffs City Council approves dozens of new numbered street lights
National Law Enforcement Memorial Week set for May
Ted Cruz backs Pete Ricketts' campaign for governor
Omahan charged with 5th-offense DUI after street race causes rollover
2 blocks of Grover Street closed
Safety board report blames pilot error in 2013 crash that killed UNO student, passenger
Omaha man accused in shooting ordered held on $75,000 bail
2 men charged with conspiracy to distribute meth held on $1 million bail each
Waitress who served alcohol to teen before fatal crash gets jail time, probation
La Vista plans meeting on sales tax proposal, 84th Street redevelopment
6-mile stretch of Highway 75 is the road not taken
Database: How much did Medicare pay your doctor?
Millard school board bans e-cigarettes from all district properties, events
< >
Breaking Brad: Into the claw machine! Florida kid follows Lincoln kid's lead
In Fort Lauderdale, Fla., a child climbed inside a claw machine. Hey, Florida kid: Nobody likes a copycat.
Breaking Brad: Even Chuck Hassebrook's throwing mud!
The Nebraska campaigns have turned so ugly, Democrat Chuck Hassebrook lobbed unfounded accusations at an imaginary opponent.
Breaking Brad: Kraft wiener recall is business opportunity for TD Ameritrade Park
Instead of returning the wieners, TD Ameritrade Park is calling them "cheese dogs" and charging double.
Breaking Brad: Photos with the Easter Bunny are so 2010
In a sign of the times, most kids ran out of patience waiting for a photo with the Easter Bunny at the mall, just snapped a selfie and went home.
Kelly: 70 years after a deadly D-Day rehearsal, Omahan, WWII vet will return to Europe
A World War II veteran from Omaha will return this week to Europe to commemorate a tragedy in the run-up to D-Day.
Deadline Deal thumbnail
Steam-A-Way Carpet Cleaning
$50 for 3 rooms and a Hallway up to 600 square feet
Buy Now
< >
Omaha World-Herald Contests
Enter for a chance to win great prizes.
OWH Store: Buy photos, books and articles
Buy photos, books and articles
Travel Snaps Photo
Going on Vacation? Take the Omaha World-Herald with you and you could the next Travel Snaps winner.
Click here to donate to Goodfellows
The 2011 Goodfellows fund drive provided holiday meals to nearly 5,000 families and their children, and raised more than $500,000 to help families in crisis year round.
Want to get World-Herald stories sent directly to your home or work computer? Sign up for's News Alerts and you will receive e-mails with the day's top stories.
Can't find what you need? Click here for site map »