Published May 30, 2012
The Senate Finance Committee advanced a key provision that would encourage private investment into startup companies in South Carolina.
“Encouraging early stage funding in high-risk technologies and businesses is one of the keys to growing innovative businesses that create great jobs, new markets and build wealth for a state,” said Wayne Roper, president of SCBIO, a statewide trade group representing the life sciences industry. “Measures like this more than pay off in the jobs, they grow and the investments they attract.”
The Bill Wylie Entrepreneurship Act (H.3779) moved forward with several amendments to the House version that would allow the state to recover the amount of the credit for investments that pay off for investors. It also requires the measure to get a sunset review after six years. The measure must get through the full Senate and reconcile with the House version by the end of the 2012 session on June 9.
The bill would provide a 35% tax credit to qualified angel investors who invest in registered startup businesses. Total credits would be limited to $5 million a year. Angel investors invest their own money and choose their own investments.
An angel investor is defined as someone with a net worth of at least $1 million. Such investors often form networks and funds and are among the first to invest in promising, but early stage, high-risk technologies and businesses. Angel investment allows entrepreneurs to develop their concepts that later attract other private funds.
“Without angel capital, we would still be like many good ideas on paper … still on paper on the shelf,” said Steve Johnson, CEO of CreatiVasc. “Angel funding provided the critical infusion that has taken CreatiVasc where it is today: one of only three companies selected by FDA to be a part of the agency's new Innovation Pathway program to move medical breakthroughs to market.
Twenty-three states have similar credit, including North Carolina and Georgia, leaving South Carolina at a competitive disadvantage, supporters of the bill have said. The state ranks in the bottom third in attracting capital opportunities for entrepreneurs.
"This is a critical step forward for a very important piece of legislation to support entrepreneurs in South Carolina, since we know that all net new job growth in the United States comes from startup companies,” said Matt Dunbar, managing director for the Upstate Angel Network. “This helps us compete for entrepreneurial talent that would otherwise incentive to seek funding elsewhere.”
The bill’s backers cited evidence that results of angel funding can be dramatic.
In Wisconsin an angel investment credit has caused the number of angel investment groups to jump from five to 23 and attracted $141.5 million to startups.
In Minnesota, a 2010 angel investment tax credit has clearly paid for itself from $15.8 million in credits, drawing $63 million.