- December 7, 2018
- Posted by: Mark Ruckman
- Category: Opportunity Fund, Opportunity Zone, Private Equity, Tax Savings
Opportunity Zones, we need a different approach for success
Bloomberg called about Opportunity Zones
This week, we received a call from Bloomberg Tax reporters to discuss our point of view on opportunity zones as they relate to businesses and startups. (Link to the article that is behind a pay wall.) Slight misunderstandings can occur during frank conversations. In this case, it involved the capital raise for Halagard: that we were raising a $2M Opportunity Zone (O-Zone) Fund.
To be clear regarding Halagard’s involvement with O-Zones, we will create a product for O-Zone Funds to purchase. Our products will be both stand-alone business and bundled business located within O-Zones. The products will consist of equity in the businesses that will be tradeable within our marketplace. Halagard, a brand new Capital Market.
Why We Need a Different Approach for Success
Is there a need to create SMB products (equity) in O-Zones? The best way to formulate an answer is to look at previous efforts like opportunity zones. One should look at both the overall success and how money flowed to businesses. A recent example is the New Markets Tax Credit (NMTC). The breakdown of investments is as follows:
- Business financing: 36%
- Commercial construction: 33%
- Commercial rehabilitation: 28%
- Residential & other – 3%
If the investments via the NMTC had been successful and turned around communities, there would have been many news stories, and the general public would be familiar with NMTC. Sadly, the only people aware of NMTCs are investors gaining tax advantages.
The federal government has made attempts to improve low-income areas with multiple programs like the NMTC. To their credit, there have been small incidents of success. However, no broad benefits for a majority of the low-income areas. Therefore, repeating solutions and outcomes will NOT improve the lives of millions of people. It is time to give O-Zones the opportunity to be a successful.
Success requires change. It is our belief that the IRS should require 50% of investments in O-Zones go directly to SMBs and creating jobs. The need for broad change in O-Zones is a theme expressed by Senator Scott in his letter to Secretary of the Treasury, Steven Mnuchin.
It is time for an SMB capital market. It is time for Halagard.