By Mark Graffagnini, President, Graffagnini, L.C. Mark is an attorney who represents investors and companies in financing transactions, general corporate matters, M&A deals and public offerings and securities reporting. This post originally appeared on graffagninilaw.com.
Photo: Salvatore Borrazzo – Weather Vane – Angel Gabriel – Index of American Design – 1943.8.17504, National Gallery of Art Images.
This is a call to action for companies out in the Silicon Bayou nation, especially #LEBs or Louisiana Entrepreneurial Businesses, to begin showing your support for the renewal of the Angel Investor Tax Credit program (“AITC program”). In July 2015, the AITC program sunsets. That means it expires. A few years ago, the program expired. When it was renewed, there was a pent up demand for the tax credits and companies attempting to claim the credit for their investment opportunities soared to over $50 Million worth of angel capital deals. The demand far outpaced the supply of credits in the year the program was renewed. Since then, the program has helped many companies raise much needed capital.
Although there is an effort underway by various groups to support renewal and potentially make improvements to the AITC program, we need the help of as many companies and entrepreneurs who have benefitted from the program as possible. We will need to demonstrate to legislators in Baton Rouge that Louisiana small businesses strongly support the program. To this end, I am asking that everyone use the #AngelCredit hashtag in the next several months to show your support for this program. What better way than to start that grassroots movement now and continue awareness through other events like NOEW and other entrepreneurial related events around the state?!
Each year, my firm does an annual report cataloging the venture and angel capital activity in the State of Louisiana. The stats show that the AITC program is used by a large number of Louisiana companies all over the state, and the program makes risky investments in early stage companies more attractive by minimizing investor risk. Early stage companies hire employees, boost our economy and generally make the state a better place to live.
The AITC program provides a 35% tax credit on investments into Louisiana Entrepreneurial Businesses (“LEBs”). #LEBs include companies who have the following characteristics:
- Louisiana is site of primary business operations
- Fully developed business plan
- Will create quality jobs in state
- Small business (less than $10 million revenues)
- More than 50% of sales derived outside of state
- Currently reserved to “accredited investors” and “investor pools”
The AITC program is important because LEBs qualifying for the AITC have a major economic impact in Louisiana. The program supported companies in Information Technology, healthcare/biotech and manufacturing, among others.
Louisiana historically has not had a large private investment capital market interested in new and emerging technology or companies. For the first time in several years, various individual funds and networks are sprouting up around the state, and the availability of the program to incentivize their investment into Louisiana businesses is central. In fact, the AITC program is an important component of the model of many of these groups.
The AITC program helps to foster the emergence of a local private investment market. Several local investors are using the program to make investments in companies that make a difference to our local economy. Tax credits make in-state businesses competitive with other investment opportunities in other states. 26 other states have angel investor programs or seed capital investment tax credit programs, and Louisiana needs to remain a competitive and attractive place for businesses in the Southeast region and beyond. Among the other states in the South/Central region of the U.S. with similar angel investor tax credit programs are GA, OK, NC, VA and AR. Some states, like TN, have even more aggressive programs that give large insurance companies breaks for investing in seed and venture capital funds in the state. We cannot afford to lose this program in Louisiana at this critical time in the history of the #startup movement here.
Show your support for the #AngelCredits program in LA in the coming months as we lead up to the challenge of renewing the program in Louisiana!