Kick-Starting Startups
For the second consecutive legislative session, the Connecticut Technology Council and Connecticut Innovations will be asking lawmakers to adopt a bill that would give tax credits to angel investors, members of the private sector that fund entrepreneurial dreams.
In fact, most states — 37 — have angel investment legislation. “It’s hardly a new occurrence,” said Matthew Nemerson, president and CEO of CTC. But so far, Connecticut hasn’t signed up. Last year, a bill that would give angel investors a tax credit made it through the General Assembly’s commerce committee. But that is as far as the bill got.
“I think instituting a new credit into the political debate is not a one-session issue,” Nemerson said. “We were delighted with how much traction it gained last year.”
CTC’s proposal is to give angel investors a 35 percent tax credit for their investment, which they can take over five years. The tax credits would be awarded only if there are actual investments. The proposal is based on the notion that successful new companies will provide a greater tax benefit to the state in the future.
The CTC believes that $15 million of tax credits could leverage $43 million in new angel investments in Connecticut startups.
Nemerson said the initial cost to implement the program would be about $50 million. However, he is well aware that the state government’s two-year budget setup is a hurdle that needs to be overcome.
“We know it’s the second year of a two-year budget and there isn’t really an appetite for things that have a fiscal impact, even if it could have a positive economic impact,” he said. “I’m confident that people will continue to talk about this and how it can be a tool to increase jobs and stimulate the economy.”
CI On Board
The fact that Connecticut is late on this trend may provide a boost to CTC’s cause because they have the reports from other states who have implemented tax credits. “We’ve just gotten a report from Wisconsin and we’re going to get them from other states that show they are happy with their returns,” Nemerson said.
Wisconsin, for example, has increased the cap to their tax credit from an initial $13 million to $23 million as a result of early success.
CI is also on board with CTC’s angel investment proposal. The quasi-public agency testified in favor of such a proposal last March. However, CI also is looking to secure more state funding of their own to become a pseudo-angel investor.
Emily Smith, CI’s managing director for external relations and government relations, said CI is proposing to receive a steady stream of state funding yearly so it can invest in seed programs and young startups.
From 1989 to 1995, CI received $65 million in bonding. However, it has not received new funding since, Smith said. In regard to CI’s seed programs, the agency plans to ask state lawmakers to allocate between $3 million and $5 million annually.
Currently, CI’s seed program is funded from the return earned on previous investments.
Smith described CI as a “step above” angel investors, as CI usually gets involved after an entrepreneur has put up his or her own money, asked family and friends for financial support, and has turned to wealthy private individuals.
Sean O’Leary is a Hartford Business Journal staff writer.
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