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Maryland just opened up a tax credit for cybersecurity investors

A change in the incentive for investors in the state's cybersecurity companies was passed in Annapolis this year. The law also includes a unique tax credit for small businesses who buy local.

The Annapolis waterfront. (Historic downtown Annapolis by Steven Frame via Shutterstock)

Following a legislative change passed earlier this year, investors who back cybersecurity companies in Maryland can get access to a tax credit.
This week, the Maryland Department of Commerce opened up applications for the incentive.
It follows the General Assembly’s move to pass a bill that tweaked the Cybersecurity Investment Incentive Tax Credit to allow investors to receive the incentive. Previously, the companies got the benefit, according to Cybersecurity Association of Maryland (CAMI) Executive Director Stacey Smith, whose organization made a push to support the bill in Annapolis. Smith said investors and companies backed the changes as a tool to help attract more capital.
Along with spurring investment from those within in the state, the change “makes it attractive for investors outside of Maryland to consider investing in Maryland’s startups,” Smith said.
Under the new law for investors, those who invest at least $25,000 in a cybersecurity business with fewer than 50 employees may be eligible for a refundable tax credit for one-third of the investment. Investors backing a business in Allegany, Dorchester, Garrett, or Somerset counties may be eligible for a credit of 50 percent. Another change allowed convertible debt as a form of investing.
Applications must be submitted a month ahead of the investment, and there’s a $250,000 limit for an investor within a fiscal year.
The change comes at a time when we’ve seen notable funding rounds for cybersecurity companies over the last 12 months like Baltimore-based Protenus and  Terbium Labs, and Howard County–based Blackpoint Cyber, Enveil and Bandura. Last week, Fulton-based Sonatype raised $80 million in a growth round.
“Maryland’s cybersecurity sector is a hotbed of ideas, imagination and innovation, and investors are taking notice,” Maryland Commerce Secretary Mike Gill said in a statement. “Offering an incentive to investors is a great way to attract even more capital to the entrepreneurs who are working to keep our nation safe and secure.”
Legislators in Baltimore have also advocated for an angel investor tax credit that would benefit all tech companies, but proposed bills have not passed the General Assembly over the last several sessions, including 2018.

Buy Local

The cybersecurity bill that passed also contains a tax credit to incentivize small businesses to purchase cybersecurity products and services made in Maryland.
Under that measure, businesses with less than 50 employees can claim a credit of 50 percent of a purchase for buying a cyber product from a Maryland company.
Smith said that provision is designed to help cyber companies grow sales, and provide an incentive that helps support the local economy and secure their technology.
In all, $2 million is available in the first year.
CAMI has been pushing to encourage businesses to buy local since its inception. The legislation helps provide some added reason to do so. Now Smith said they’re getting interest from other states, as well.
“We’re not aware of anyone else that’s doing it across the country,” she said.


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