To keep university innovations and startups local, states could establish a tax exemption for investments in targeted early-stage companies. This would incentivize venture capital from accredited investors and equity crowdfunders. One way to achieve this would be to offer a capital gains tax exemption for investments in qualified start-up companies. The exemption could require a three-year minimum investment to be eligible, and could extend for up to ten years. Having patient capital gives companies more certainty and helps avoid the “valleys of death” during technology development and commercialization. Knowing that investors have an incentive to make long-term investments will attract startups to the state.

Similar capital gains tax exemption programs have been successful in the United Kingdom: The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are tax-based venture capital schemes that provide tax relief to investors in high-risk companies. The EIS started in 1994 with the aim to help small, high-risk companies build capital by offering tax relief to investors. In 2012, the government established the complementary SEIS, which offers tax relief at a higher rate for early-stage investment. Approximately 22,900 companies have benefited from the EIS, raising over £12.2 billion in funds since the program began in 1994. From 2013 to 2014, SEIS spurred a total of £164 million of investment in 2,000 companies.