Newspaper article St Louis Post-Dispatch (MO)

State Will Pay You 40 Percent to Take Big Investment Risk

Newspaper article St Louis Post-Dispatch (MO)

State Will Pay You 40 Percent to Take Big Investment Risk

Article excerpt

Invest in Larry Cowsert's company and the state of Missouri will give as much as 40 percent of your money back.

That's hard to believe, but it's true for Missouri residents who qualify.

Those who take the state up on its offer, however, should understand they are taking a serious risk with a company that hasn't yet reported a profit. Cowsert runs NewStar Collaborative Technologies, a Chesterfield software firm. NewStar is in the midst of making a public stock offering over the Internet. The company recently announced that its investors qualify for a huge state tax credit designed to encourage investment in small companies. If NewStar succeeds, expect more Missouri companies to use the tax credit in a pitch for small investors. Here's how it works: NewStar's stock offering is called a SCOR offering, for Small Corporate Offering Registration. This is speculative investing. and it's is not for elderly widows and orphans. To invest, you must have a minimum net worth of $75,000, not counting home and car, or an income of $30,000 a year and net worth of $30,000 not counting car or house. Missouri then gives you a credit on your state income tax equaling 40 percent of what you invest. Unlike a deduction, a credit comes directly off the bottom line of your tax bill. For instance, if you invest $10,000, you take $4,000 off your Missouri state income tax bill. If you can't take the entire credit one year, you can carry it over for 10 years. The fat tax credit takes a hunk of risk out of your investment. But this is still scary stuff. Take heed of Doug Wilburn, Missouri's commissioner of securities. Wilburn's office encourages SCOR offerings to raise capital for small companies. But, he warned, "This money should be considered the most s peculative of investments and you should understand that you could lose it all." In other words, your chances here may be better than at the casino, but you're still gambling. People who buy into such techy firms are betting that their investments will pay off big as the company's products take off. NewStar makes software that lets people far away from each other show pictures, talk and draw or write on their computer screens simultaneously through telephone lines and the Internet. A worker in St. Louis draws on a screen and says, "Look at that." His partner in Cleveland hears and sees. The company also has a product for backing up files. Some of the company's software has landed at Maritz Inc. and at NASA through Lockheed Martin Engineering. But marketing has only started recently. Through most of its four-year history, the company was developing products, and firms don't make money until they sell things. NewStar lost $481,000 through 1994 and 1995. Investors who buy into such small firms have to do their own research. …

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