Inspired by a Connecticut program that several Stamford startups have used to leverage cash, U.S. Sen. Chris Murphy, D-Conn., is proposing a federal "angel" tax credit that would encourage affluent people to invest in early-stage companies.
The proposed Angel Tax Credit Act would allow investors to claim a tax credit equal to 25 percent of their equity investments in qualifying startups, with a minimum investment floor of $25,000. Murphy introduced the bill Wednesday alongside a Helping Angels Lead Our Startups bill he is co-sponsoring alongside colleagues from both sides of the political aisle.
Since 2010 when Connecticut established its tax credit, 90 angel investors have made claims on investments in 50 companies here, with the pace of investment accelerating dramatically after the state lowered the minimum threshold to $25,000 from $100,000 prior to 2012. Stamford startups that have qualified to trigger tax credits include CircleLink Health, eBrevia and Cashpath Financial.
State legislators have introduced legislation that would reserve 25 percent of any tax credits in Connecticut for women-owned startups.
"I've traveled around Connecticut and have heard from local entrepreneurs and interested backers alike that the most important thing we can do to help these businesses is make it easier for angel investors to put capital behind them," Murphy said in a press release.
Nationally during the first half of 2014, nearly 30,300 startups received angel funding, a 5.9 percent increase from a year earlier according to estimates by the UNH Center for Venture Research at the University of New Hampshire. In all, more than 143,100 angels invested in startups during that six-month period, a 6.1 percent increase.
Those investments helped create nearly 97,000 jobs, or 3.2 jobs per angel investment.
Murphy's bill does not represent the first attempt at a national angel tax credit, with a 2013 bill failing to become law that, among other elements, would have limited to $250,000 the tax credit for any single investor and cap the credit at $500 million for all investors over five years.
The HALOS bill is intended to fix an unintended consequence of the Jumpstart Our Business Startups Act of 2012, which exposed angel investors to having to turn over personal financial details at "demo days" conferences where entrepreneurs describe their businesses as they seek seed financing.
The Angel Capital Association lists three angel groups in Connecticut: the Angel Investor Forum, which is active in Fairfield County, as well as the smaller Landmark Angels of Greenwich and Topstone Angels of Darien.