Angel investment tax credits go unused

By Ashley Boncimino
ashleyb@scbiznews.com
Published May 20, 2014

The S.C. Department of Revenue approved 15% of $5 million in available income tax credits for angel investors who invested in S.C. small businesses.

Passed last June, the High Growth Small Business Job Creation Act allotted up to $5 million in annual income tax credits available for investments made in high-growth, early-stage companies by accredited investors. According to the act, qualified investments were eligible for a 35% income tax credit.

The state approved $769,000 in tax credits, which is 15% of the $5 million cap. Of that, $286,020 was in Greenville County.

Businesses in the state reported $7.4 million in qualified investments last year, according to the S.C. Department of Revenue. If all of that was approved for angel investment tax credits, investors would have received $2.6 million in tax credits. The state awarded only $769,000 in tax credits, however. It’s unclear why the two figures are so far apart.

To receive the credit, businesses seeking investment must register with the S.C. Secretary of State. Their investors must then apply for the credit. For businesses to qualify for investments under the bill, they must be headquartered in the state; have formed within the last five years; employ fewer than 25 people and accrue annual revenues of less than $2 million.

In accordance with the act, the S.C. Secretary of State submitted a report at the end of April that 33 businesses qualified. The qualified businesses reported raising over $20 million in capital, creating 85 full-time and 31 part-time or temporary jobs.

Advocates for the bill, including the Upstate Carolina Angel Network’s Director Matt Dunbar, have said that early-stage, high-growth companies are major drivers of job growth and wealth and that this bill can help these companies combat challenges related to finding and securing capital investment.

Angel investors typically provide equity investments between $25,000 and $2 million and generally expect to receive their investments back with a significant return, according to 2013 report by the Small Business Institute Journal on the effectiveness of state-funded angel investor tax credit methods.

To receive the tax credit, angel investors must meet the U.S. Securities and Exchange Commission’s definition of an accredited investor, and no brokerage fees or commissions are allowed.

Accredited investors are individuals who make $200,000 or more per year, couples who make $300,000 or more per year, or couples or individuals with a net worth of more than $1 million excluding the value of their homes. South Carolina has more than 100,000 accredited investors capable of supporting high-growth companies.

“If we could get 1% of accredited investors in South Carolina to invest 5% of their assets, that’s $57 million we could invest in companies here,” said Dunbar, who gave a presentation Wednesday at an angel investment seminar at the Greenville Chamber of Commerce.

The seminar was aimed at educating entrepreneurs, small business owners, angel investors and financial services professionals about fundraising by privately held businesses.

Crediting angels

The chart shows angel investment tax credits awarded by origin of investment in South Carolina business. Tax credits awarded for out-of-state applicants may be eligible to be transferred.


County

Charleston

Greenville

York

Volusia, Fla.

Fulton County, Ga.

Total

Applications received

3

10

1

1

1

16

Applications approved

3

6

1

1

1

12


Tax credits approved

$105,000

$286,000

$367,000

$8,750

$1,750

$769,000

SOURCE: S.C. Department of Revenue

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