Colorado Legislators Aim to Reward Angel Investors with Tax Credit
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what the results are in terms of jobs or things like that,” Hudson said.
One state that has had a tax credit program for longer than that is Wisconsin, and it has emerged as one case study supporters point to.
Wisconsin has been using tax credits since 2005, and so far the state has distributed about $60 million in credits to 160 eligible companies, said Wisconsin Angel Network director Dan Blake. In 2012, $12.1 million in credits were distributed.
Blake and supporters of the Wisconsin program believe it has had two effects on angels.
Investors “are not just making an investment because of the credit, but it definitely brings people off of the sidelines. And there are a lot of people that think it makes for larger round sizes,” Blake said.
There are other signs in Wisconsin that the credits are having the intended effect, according to Blake. One is the number of angel groups throughout the state. According to the Wisconsin Angel Network, there are about 20 angel networks in the state.
Additionally, the tax credit program is leading startups to make sure they qualify because it’s considered a positive sign for investors.
“It’s oftentimes one of the first things that we work with companies on, to make sure they’re certified to receive the tax credit,” Blake said. “You’re far more attractive and it helps raise attention, and it’s definitely something a lot of early stage investors are looking for.”
A Prior Attempt
This isn’t the first time Colorado has tried to spur angel investing. In fact, the state legislature created a tax credit program for angel investors in 2010. Backers of the current bill say that measure was largely ineffective and little known.
“It had parameters around it that were pretty limiting for angel investors,” Giles said.
It also was very small. According to an FAQ from the state Department of Revenue, it was a 15 percent credit that was capped at $20,000 per investment. The program only issued credits for investments made in 2010, and it had a total cap of $750,000.
The credit also came before the surge in interest in angel investing over the past few years, Giles said.
“At that time, our angel community wasn’t really well established and didn’t have networks in which to invest,” she said. “Since then, they’ve just become much more engaged.”
But even if they’re becoming more organized, local angels haven’t been paying much attention to the state legislature and they still aren’t very familiar with the new bill, Rockies Venture Club director Peter Adams said.
“There’s not a whole lot of awareness about it, to tell you the truth. I haven’t heard a lot in the community about it,” Adams said. He said the RVC will try to get the word out.
Adams said he supports House Bill 14-1012, even though he would like to be sure legislators listen to investors to make some tweaks to its language to make it more investors friendly.
“This is a tool that 30 other states have that Colorado needs to have to rally our investors around the startup community,” he said.
If Colorado’s angel investors and startups want the bill to pass, odds are they’re in for a bit of a fight. Not necessarily because of direct opposition to the credits for startups, but because there is stiff competition for the limited amount of dollars the legislature will allocate to tax incentives while the state still has a tight budget. A lot of industry and interest groups are asking for breaks, and many will inevitably be unhappy, Gerou said.
“Do your work, because it could make the difference between life or death,” Gerou urges supporters of the bill. “I’m afraid we’re going to see a lot of these tax exemption [and credit] bills die because we just can’t afford them.”