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New Federal Tax Provision Accelerates Angel Investments

Mark Marich on October 20, 2010 Source: Policy Dialogue on Entrepreneurship

The Angel Capital Association (ACA) has alerted its members about the provision of the Small Business Jobs Act of 2010 that provides a 100 percent exemption for gains made in Qualified Small Business Stock. This benefit is for investments made between September 27 and December 31, 2010. “This provision encourages angels and entrepreneurs to speed up investments that are already in the pipeline,” said Marianne Hudson, ACA’s executive director. “The significance is that entrepreneurs will receive the funds they need to grow their businesses sooner. That means they can hire people which adds new jobs to the economy.”

In 2009, a Kauffman Foundation study estimated that angels funded more than 97 percent of the 45,000 companies that received seed and early stage equity investment, so this new tax exemption can have important effects on job creation in our country.

John Huston, manager of the Ohio TechAngel Funds in Columbus, Ohio and ACA chair emeritus said that the average salary of jobs in angel group portfolio companies is relatively high. “In Ohio TechAngels’ case,” Huston said, “it is more than $83,000. Such job holders pay taxes so policy makers should heed the impact of this beneficial change in light of the criticality today of creating more jobs, and especially taxpaying ones.” Hudson´s group of angels are using the tax benefit to accelerate a final close on its investment in TheraVasc, a privately-held biotechnology venture that seeks to reduce the risk, cost, and time associated with drug development.

Angels and startup founders alike are excited. John Wolpert, CEO of Upstart Mobile and Cabulous (an Upstart Mobile enterprise) shared the impact the new legislation has had on this start-up: “…this legislation has sparked excitement among investors. I’ve gotten emails from many of them. They are in action mode. They want to do something.” “The one thing you are trying to do as a founder of a startup is get people to take action—invest in your company, come to work for you, buy your product. You have to get it all moving in a common direction. This tax credit generates energy that allows us to do that.” ACA’s executive director expressed that an extension of the incentives could lead to many new investments and job creation, noting that many potential investments that were not in the pipeline prior to the Small Business Jobs Act may not be able to take advantage of the tax benefits.

We hope to report about the benefits on the economy and new policy developments supporting angel investment soon.

Category:  Tax Code  Growth & Poverty 

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