Originally published in Treetop Ventures‘ April Newsletter, this guest post is republished by Silicon Prairie News with the permission of the post’s authors, William Fisher and Dwight Hanson of Treetop Ventures. (Pictured: Fisher, left, and Hanson. Photos from treetopventures.com.)
Fisher, a partner at Treetop Ventures, is a seasoned business executive and technology investor who has served as a director for several prominent public companies and a number of private firms. Hanson, also a partner at Treeptop Ventures, has over 20 years of experience helping organizations through IPOs, acquisitions and product and company launches. (Read full bios at treetopventures.com.)
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Treetop Ventures has been actively following the legislation proposed and recently advanced by a 38-0 vote in the Unicameral here in Nebraska. The new angel tax incentive would provide a 40 percent tax credit this year, followed by a reduction to a 35 percent tax credit in 2013. As currently proposed, the credits would run through 2017 and the amount would be capped at $3 million for the total credit funds set aside in the budget.
Most of the debate on this proposed bill focuses on the issue of how successful angel ventures are. However, a majority of startup companies don’t succeed. There is plenty of skepticism by those opposed to giving such a large tax incentive to the funding of these ventures. On the other hand, there is a definite benefit to be gained from making Nebraska a location that is strongly rooted in entrepreneurial endeavors and attracts investors to back startup companies. As an angel firm, we know better than most the ratios of failure to success when it comes to startup companies. However, one success story can easily offset the unsuccessful attempts that preceded it. We have also seen that often those involved in one successful startup tend to get involved in other successful ventures as well. First Data, ACI Worldwide and West, Inc. are all examples of local entrepreneurs starting a company that today employs thousands of people in the local economy. The list is actually much too long to include in a note like this.
Nebraska was able to largely avoid the economic downfall that the recession led to throughout the rest of the country; however, as time goes by and the recovery slowly drags on, we have felt the aftershocks. An incentive like this Angel Tax Credit is one more opportunity for Nebraska to add to a well-diversified economy, which allows us to attract a wide array of businesses and strive towards being well-rooted in entrepreneurial growth. Being the heart of the Midwest, we are known for conservatism and stability, but with that we can make decisions that will advance our leadership role in areas such as business.
Successful pockets of entrepreneurial companies exist in areas of the country where the university system and the state both join in with local investors to create a climate in which entrepreneurs can create success. Boston (MIT), Austin, Texas (University of Texas), Boulder, Col. (University of Colorado) and Palo Alto, Calif. (Stanford) are all examples of this. Although this bill isn’t an answer to everything we need to build a strong and successful entrepreneurial ecosystem, it is a start! While we appreciate the effort behind the legislation, the question that seems to be going unasked is whether this is enough. Those opposed to the legislation fear that it is too much money for too limited a return given the success rate of Angel investments. To those in the field, the amount is far too low. Capped at $3 million per year, this would hardly cover the investments for any active Angel group (for example, it wouldn’t cover ours!). Perhaps there is a lack of understanding as to how active Angel investing really is in Nebraska. As we said, it is a start, but the state needs to realize and research how much of this activity actually goes on so that the legislation is tailored to have an actual and respectable effect.
This tax credit is an opportunity for Nebraska to once again illustrate to the country that while we may not always make the news, we are always making advances; we just need to ensure that we are taken seriously in the manner in which we seek to help grow Angel investing.
