Connecticut’s four-year-old angel investor tax credit program could soon take the national stage.
The state program, which allows angel investors to take a 25 percent tax credit on up to a $250,000 investment in a startup company, is serving as the model for a similar federal tax credit that U.S. Sen. Chris Murphy (D-CT) is trying to push through Congress.
Since launching in Connecticut in 2010, the credit has supported more than 200 investments by 90 angels in more than 50 companies, according to Murphy.
The Connecticut law created even more support for startups in 2012 when the credit threshold was lowered from $100,000 to $25,000. After that change, investment pledges went from $2.4 million in nine companies to $8.6 million in 23 companies.
Murphy said he’s hoping to leverage Connecticut’s success to help make more capital available to startups around the country.
“We have seen the beginning of some real success with Connecticut’s angel tax credit,” Murphy said. “This is particularly key for Connecticut’s economic development strategy moving forward … where Connecticut’s cities are creating these cultures of innovation.”
The hope is to reverse the lack of new startup businesses across the nation. In 1994, the country had 4.1 million businesses less than a year old; in 2010, that number was only 2.5 million, according to the U.S. Bureau of Labor Statistics.
Murphy introduced his federal tax credit proposal with bipartisan support — Congressman Steve Chabot (R-Ohio) introduced the bill in the U.S. House of Representatives — so he is bullish on the bill’s prospects of one day becoming law, but it probably won’t happen until at least 2015.
The federal angel investor tax credit would have to be implemented as part of a larger tax reform package, which won’t be touched upon during this election year, Murphy said.
Connecticut’s early success will be a good argument for its federal passage, Murphy said, and he expects the proof will grow as long as the state continues to allow angel investors to take the credit.
“These tax credits take awhile before they ramp up as people realize their potential,” Murphy said.
Slate Ballard, founder of the New Haven coworking space and incubator The Grove, said more startups are receiving funding as a result of Connecticut’s tax credit, and a federal expansion will loosen even more funding for new companies.
“It is going to open up a lot more dollars going into small startups,” Ballard said. “They need this type of money. It is a huge need.”
– Brad Kane
