Another relevant study comes from Iowa. In December 2014, the Iowa Department of Revenue published a lengthy review of its venture capital tax credits program, the Qualifying Business or Community-Based Seed Capital Fund. This fund, like others nationwide, was designed to provide an incentive for investors to make very early investments in start-up firms. This credit first became available to qualified investors in 2002.
As part of the state of Iowa’s review, scholars at the University of Iowa examined business employment and sales using the NETS database. As with the Donegan, Lester and Lowe study, these scholars tracked the performance of Iowa firms that had received investments from funds that were awarded the QBSC Tax Credit and compared its performance to a control group of firms that had not enjoyed investor support facilitated by the state tax credit program.
They found “there was no difference in firm survival” between treatment and control groups in Iowa. In a second analysis, the researchers found that the treatment group had higher employment and more sales than the control group. This came with an important qualification, however. The sample size used in the study was so small, the report said, that “the authors cannot rule out that the actual impact of the program on employment and sales is zero.”
From a cost-benefit analysis perspective, however, the program appears to be negative.
The authors write that those firms that received an investment employed 200 people, just 36 more than they would have otherwise employed if not for inclusion in the Iowa tax credit program. This was accomplished thanks to tax credits, totaling $10 million and offered for investments in just 30 businesses, between 2002 and 2007.