Incentivizing Early Funding with Angel Tax Credits
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Incentivizing Early Funding with Angel Tax Credits
- 1. Incentivizing Early Funding With Angel Tax Credits Sun, March 15, 3:30pm Room 412, Hilton Austin Downtown • Amy Millman, Springboard Enterprises • Barbara Boxer, BELLE Capital USA
- 2. 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)
- 3. 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
- 4. 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%
- 5. 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
- 6. FEDERAL Angel Tax Credit Act Provisions Legislation that would provide investors with Tax credit for investing in qualified early stage companies MORE GENEROUS THAN SOME STATES • 25% of investment • $2M credit maximum • $25,000 minimum investment • <50% equity restriction • <$1M gross revenue at time of investment • <7 years old • <25 employees • May carry over credits until exhausted • 3 year equity holding period
- 7. EXAMPLES OF STATE PROGRAMS Minnesota - 48% of surveyed angels would not have made their investment without a 25% credit; 34% would have invested less Louisiana -Angel investment tripled -4 years with 50% credit Maryland • 160 = Number of companies receiving investments • 12.1 = Credits issued ($M) • 152.6 = Total Private capital leveraged ($M) • 1465 = New local jobs spurred by credit • 13.79 = Tax on earnings and value added ($M)
- 8. 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?
- 9. • 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