Worcester Business Journal

wbjournal.com | April 29, 2019 | Worcester Business Journal 21 Build an innovation ecosystem Opportunity awaits the Worcester investor V I E W P O I N T E D I T O R I A L A t first glance, the statistic sounds depressing: Worcester County only gets 1% of the venture capital funding invested statewide for startups and early-stage growth companies. Now, an average take of $89 million in annual venture funding over the last five years isn't a bad number considering the size of the Central Massachusetts market, but since we're so close to Boston – one of the top three places in the country for venture capital funding – you would expect there to be more spillover. With about $8.3 billion up in venture capital for grabs annually in Massachusetts, according to industry tracker PitchBook, you would hope that Worcester County's slice of the pie could grow. As News Editor Grant Welker points out in his "Little Venture" story on page 10 of this edition, venture capital isn't the only way for startups to get funding and survive those initial years. Still, having venture capitalist paying closer attention to our innovation economy can be an important accelerant to its growth. If our region wants to grab more of the dollars now highly concentrated in Boston and Cambridge, officials from government, education and the business community here should be more actively encouraging and feeding the creation of a robust innovation ecosystem. With positive momentum, exciting startups should become more commonplace than they are today. Organizations like Worcester Polytechnic Institute, the incubator Massachusetts Biomedical Initiatives, the Worcester Regional Chamber of S omeone once told me opportunity does not knock. It presents itself when you beat down the door. It is time we opened doors to take a high-level view on the po- tential of relatively newly created opportunity zones, part of the massive federal tax law overhaul from 2017. ey are an economic development tool, designed to spur development and job creation in distressed commu- nities by providing tax incentives. An opportunity zone is an economi- cally distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as oppor- tunity zones if they have been nomi- nated for that designation by the state and certified by the U.S. Treasury. e first set of opportunity zones, covering parts of 18 states, were designated in April 2018. Opportunity zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories. is includes parts of Central Massachusetts and specifically Worcester. e way to invest in a qualified opportunity zone is via a qualified opportunity fund. A QOF is an investment vehicle set up as either a partnership or corporation for investing in eligible property. Taxpayers may want to set up their own QOF with its federal income tax return. You can get the tax benefits, even if you don't live, work or have a business in an opportunity zone. You just need to invest a recognized gain in an opportunity fund and defer the tax on that gain. Virtually any entity or individual required to report cap- ital gains can receive opportunity zone benefits: A deferral of the tax on the original gain; a 10% reduction of the tax on the original gain, if the investment is held for five years; an additional 5% discount if its held for seven years.; no taxable gains on the investment if held for 10 or more years. e potential tax savings from an investment in a QOF can be significant. Let's say you had the foresight to invest $400 in Amazon back in 1997. Further, let's say that investment is now worth $1 million, giving you a gain of $999,600. You could sell the stock and pay the tax on the gain, or you could sell it and reinvest the proceeds into a QOF within 180 days of sale. If you choose to sell your stock and reinvest the proceeds in a QOF, the gain can be deferred until 2026 and is reduced by 15%. If you hold your invest- ment in the QOF for 10 years, the gain on your Amazon stock in this example is reduced by 15% and any subsequent appreciation in the QOF is not subject to any federal tax. In October, the U.S. Treasury Service and the Internal Revenue Service issued proposed regulations providing more detailed guidance for the new opportunity zone incen- tive, saying almost any capital gains qualify for deferral. As always, you should consult with your own financial advisor. Worcester has always offered plenty of opportunities; now, smart investors can help the area strengthen its eco- nomic viability while benefiting individually. Alan Osmolowski, of Holden, is a tax partner at the regional CPA firm blumshapiro. BY ALAN OSMOLOWSKI Special to the Worcester Business Journal Alan Osmolowski Commerce and Massachusetts Biotechnology Council clearly understand this and are actively pushing to develop more critical mass to drive further innovation. MBI offers low-cost space and startup assistance for entrepreneurs. WPI funds its students' startup ventures and hosts competitions for them to receive funding, and the chamber's StartUp Worcester initiative provides a similar service. e biotech council is a statewide organization, but it offers early-stage mentoring programs to turn ideas into startups and, eventually, sustainable companies. e council understands the potential for Central Massachusetts to be a growing breeding ground for entrepreneurs. With an environment encouraging innovation and risking exploring new ideas, successes and failures go hand in hand. But the net effect of growing such an environment will be the region becoming a destination where entrepreneurs can find enough support to grow their ideas to the point where investors want in. Venture capitalists and angel investors – like all other sources of capital – are creatures of habit, who tend to fish in the same ponds. If Central Massachusetts can churn out more startups who turn out to be good investments, more of those venture capital dollars will start to swing in our direction. So, no, 1% of the total venture investment made in the state is not acceptable, but it's a number we can improve upon. e region, as well as the city of Worcester, has a good story to tell, but we've got to be more aggressive in building the right ecosystem and more coordinated in those efforts. W The Worcester Business Journal welcomes letters to the editor and commentary submissions. Please send submissions to Brad Kane, editor, at bkane@wbjournal.com. A T H O U SA N D WO R D S W

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