Incentivizing Early Funding With Angel Tax Credits

Sun, March 15, 3:30pmRoom 412, Hilton Austin Downtown

• Amy Millman, Springboard Enterprises• Barbara Boxer, BELLE Capital USA

Angel Investments in 2013: $24.8 Billion

• Angels investors are high net worth individuals who make equity investments in companies with high growth potential.

• Angels make up about 90 percent of early stage equity investments not covered by friends and family.

STATISTICS (2013)

• $24.8 Billion Total angel investments• 70,730 Total ventures that received angel funding• 298,800 Number of active angel investors

* According to the Center for Venture Research. (2013 last full year)

What States have Angel Tax Credits?

Many states now allow angel investors to receive a partial tax credit of the investment they make in early-stage businesses

• States with incentives:Arizona, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Missouri, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Carolina, Utah, Vermont, Virginia, Wisconsin, West Virginia

Benefits of Angel Tax Credits

• Offsets some of the risk inherent in seed investment• Fills the gap of early stage financing for start-ups• Helps attract new people to investing in startups • Leads to more total investment dollars • Provides government returns in the form of

employment taxes paid by the growing companies that benefited from these programs

Survey by Tuomi and Boxer• 69% invested in more firms/more money with credit• Mode increase in investment: 30%

Characteristics of State Angel Credits*

• 25% of investment• $2M credit maximum• <50% equity restriction• <$5M gross revenue at time of investment• <7 years old • 5 year carry over of credit• 3 year equity holding period * on average

FEDERAL Angel Tax Credit Act ProvisionsLegislation that would provide investors with Tax credit for investing in qualified early stage companiesMORE GENEROUS THAN SOME STATES

• 25% of investment• $2M credit maximum

• $25,000 minimum investment• <50% equity restriction• <$1M gross revenue at time of investment• <7 years old • <25 employees• May carry over credits until exhausted• 3 year equity holding period

EXAMPLES OF STATE PROGRAMS

Minnesota - 48% of surveyed angels would not have made their investment without a 25% credit; 34% would have invested less

Louisiana -Angel investment tripled -4 years with 50% credit Maryland• 160 = Number of companies receiving investments• 12.1 = Credits issued ($M)• 152.6 = Total Private capital leveraged ($M)• 1465 = New local jobs spurred by credit• 13.79 = Tax on earnings and value added ($M)

Questions to Consider

• 1. Do angel tax credits improve deal quality?• 2. Do angel tax credits only reward investors

who would have invested anyway?• 3. Can we have both Federal and State angel

tax credits?• 4. Would the political capital required be too

high?• 5. Would this place an excessive burden on

businesses filings?

• States with Expired Programs:Colorado, Hawaii, Michigan, Minnesota, North Carolina, Oklahoma

• States with proposed programs:

Delaware, Massachusetts, Mississippi

• States with no income tax/ program:Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington

• States with income tax and no program:

Alabama, California, Idaho, Montana, Pennsylvania, Wyoming