Connecticut entrepreneurs looking for capital to expand or start a business are getting some help from the state legislature.
As part of the sweeping jobs creation bill passed by both the House and Senate, lawmakers have created new tax credits for angel investors and a $15 million loan pool for small businesses. The moves are designed to ease the credit crunch and grow employment in the state.
The bill, which needs to be signed by Gov. M. Jodi Rell, authorizes personal income tax credits for people who invest at least $100,000 in Connecticut start-up businesses in bioscience, advanced materials, photonics, information technology, and clean technology.
“Doing this sends message that we are serious about investing and job growth in high technology,” said Michael Nicastro, president and CEO of the Central Connecticut Chambers of Commerce and a board member of the state’s Angel Investors Forum. “I think it’s a step in the right direction.”
An angel investor is a wealthy individual that invests in a single startup company. There is a growing need for them because many venture capitalists are shying away from early-stage investments, Nicastro said.
Of the $127 million venture capitalists invested in Connecticut companies during the first quarter of 2010, for example, only 1 percent or $1.3 million were injected into early-stage companies.
“The big guys are waiting for later stage deals,” Nicastro said. “They want to see absolute revenue generation or positive cash flow before they invest their money.”
Nicastro said the bill has the opportunity to boost angel investments in the state, but it won’t happen overnight. He said it will likely take a year for the program to gain momentum in order to tap its full potential.
“The state needs to advertise and get the word out,” Nicastro said.
Nicastro said his group, which matches startup companies in the medical devices, financial services, software and consumer products industries with like-minded investors, has been seeing a lot more applications lately, and typically receives about 300 to 400 business pitches a year.
The group, which consists of 50 or so investors, will typically make four to eight seed investments annually, ranging from $250,000 to $5 million. The new tax credit equals 25 percent of an angel investor’s cash investment, or up to $250,000.
The bill limits the total credits all angel investors may claim to $6 million per year in 2011 and 2012, and $3 million per year in each subsequent fiscal years until 2019.
Connecticut Innovations, the state’s quasi authority for technology investing, will direct the credits, which cannot exceed the total income tax an investor owes in a given year.
Bank and venture capital companies are not eligible for the tax credit.
Qualifying business start ups must have:
Gross revenues under $ 1 million in its most recent income year;
Fewer than 25 employees, at least 75 percent of whom are Connecticut residents;
Operated in Connecticut for less than seven consecutive years;
Received less than $2 million in eligible investments from angel investors.
The $15 million loan pool will be available for small businesses and nonprofit organizations. The commissioner of the Department of Economic and Community Development will administer that program and can provide up to $500,000 loans and lines of credit to companies employing fewer than 50 people.
Nicastro said it will be important for the state to monitor the tax credits closely so they can measure their true impact.
“This is not something you throw into the fire and see how it burns,” Nicastro said. “You are going to need to take the temperature of it every six months.”
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The McLean Group, a Virginia-based national independent investment bank, has established a presence in Connecticut.
The firm, which provides merger and acquisition, capital formation, market intelligence, and business valuation services, will operate out of the office of Farmington-based accounting firm Del Conte, Hyde, Annello & Schuch, P.C.
The McLean Group’s new Hartford office will be managed by Bruce M. Del Conte, who is a managing partner at Del Conte, Hyde, Annello & Schuch, P.C.
Del Conte said his affiliation with The McLean Group will allow him to provide more research capabilities, investment expertise and a worldwide buyer network to customers at his accounting firm.
“Affiliation with a top middle-market investment bank like the McLean Group is the perfect next step for us,” Del Conte said.
Dennis Roberts, chairman and founder of The McLean Group said his firm sees greater Hartford as a market that is “ripe for an increase in the merger and acquisition market.”
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
