Connecticut’s investor community is pushing for a change in the state’s recently adopted angel investor tax credit program that would lower the qualifying threshold for people looking to inject cash in a start-up company.
Under the program, which was adopted last year by state lawmakers, angel investors must make a minimum capital injection of at least $100,000 to qualify for the tax credits.
But industry officials say that threshold is too high, and they want to lower it to $25,000 in order to spur more interest and deals.
“I think the current threshold is a bit high for the angel investor community in Connecticut,” said Peter Longo, president of Connecticut Innovations, the state’s quasi public technology investment arm, which runs the tax credit program. “Typically, angel groups are investing in multiple companies and putting small bits of money into each of them.”
Longo said in order for angel investors to benefit from the tax credit program in its current form, four or five investors must form a limited liability company and pool their individual investments to reach the $100,000 minimum level. That is cumbersome and burdensome to investors, and by lowering the threshold to $25,000, more angels will be willing to participate in the program, Longo said.
Sen. Gary LeBeau, co-chair of the commerce committee, said he sees support for the change.
“I think it has a great chance of passing,” LeBeau said. “I think it’s an important technical change.”
An angel investor is a wealthy individual who invests in a startup company.
Angel funding has become increasingly popular — and important — in recent years, especially after the dot-com bust scared venture capitalists away from early-stage deals, creating a major funding gap for startups. Obtaining financing for startup companies in Connecticut has been a particular challenge, which is why lawmakers adopted tax credit program last year. It allows angel investors to take a credit against their income tax for certain investments made in bioscience, advanced materials, information technology and emerging technology businesses.
Currently, investments must be at least $100,000 and the income tax credit equals 25 percent of the cash investment, up to a maximum credit of $250,000.
The state has allocated $6 million for the program over the next few years and then $3 million a year until 2019.
So far, Longo said the program has performed as he expected. A total of 10 angel investors have invested $ 2.1 million in seven Connecticut businesses that have qualified under the program. Those investors have received $536,250 in tax credits.
So far, 21 Connecticut businesses have qualified under the program.
“I think the program is where I envisioned it would be at this point,” Longo said. “But I think there should be more activity.”
