Nebraska angel investors and a national investing expert on Wednesday shared mixed feelings about the state's new Angel Investment Tax Credit Act, which will give a 40 percent state income tax credit for high-risk investments in startup businesses.
A number of angel investors attending a seminar at the University of Nebraska at Omaha's Thompson Alumni Center said the law will do some good but won't spur the kind of deals in high-growth startups necessary to expand Nebraska's economy or provide more opportunity for investors.
The seminar, organized by the Nebraska Angels, the state's largest angel investment group, was aimed at sparking interest in angel investing and exploring how the new law will affect investors.
The new policy, which becomes active Sept. 1, is supposed to encourage high-risk investments in high-tech and other startup firms by providing refundable state income tax credits. Credits are offered for a minimum investment of $25,000 for individuals and $50,000 for investment funds up to a total of $3 million annually.
One person, who spoke on the condition he not be identified because he has clients planning to take advantage of the new law, said there could be marginal new investment as a result of the law because investors aren't going to make deals solely for the tax credit. They need the startups they're investing in to represent an opportunity for expansive growth.
He also said that the law will serve as a billboard for the state, signaling that Nebraska is angel investment-friendly and willing to stimulate funding options for start-ups.
The law passed earlier this year was part of a four-pronged economic development push by Nebraska Gov. Dave Heineman. The three other bills include an advanced internship program; grants to help businesses build new technologies; and a fund to help increase the number of industrial and commercial sites available for business development.
Heineman has said putting those policies into law gives Nebraska "one of the strongest public policy strategies" in the country for attracting and growing technology-focused companies.
Others aren't impressed by the angel investment law.
"I think it's a dumb law," said Pete Ricketts, a member of the Nebraska Angels investing group. The former chief operating officer at TD Ameritrade and Republican candidate for U.S. Senate was participating in a panel discussion at the event Wednesday.
"Maybe I'll invest in a Nebraska company and I'll get that tax credit back, but I guarantee you I'm not investing in a company because of a tax credit," Ricketts said. "It's just giving away the state's money to people who probably don't need it."
Ricketts also said he was disappointed that the economic downturn hasn't provided more investment opportunities. During recessions of the past, he said, people who lost their jobs put their energy into building new companies, but he hasn't seen that.
Additionally, Ricketts said, uncertainty about the recovery has made it hard for startup firms to secure credit or funding from friends and family members keeping a tight grip on their budgets. Both of those steps typically come before angel investors consider funding a company.
Most investors interviewed by The World-Herald were more neutral about the law, saying it stabilizes some investment risk and helps Nebraska compete with surrounding states like Kansas and Iowa, both of which have angel investing tax credits in place.
Including Nebraska, there are 22 states with such laws. California and Massachusetts, the two states with the most angel investor dollars flowing into startups, do not.
"It helps us compete with other states, and I think it's a great start from that standpoint," said Randy Nitz, executive director of the Nebraska Angels. "It will, in my opinion, not necessarily make an investor invest in a deal, but it obviously takes some of that investment risk out of it by having it a refundable tax credit."
According to data shared during Wednesday's seminar, 50 percent of angel investments in the United States don't net any returns and less than 10 percent of investments provide most of the returns reported by investors. So getting your money back on a deal is a coin flip. Hitting it big on an investment, or at all, is even less likely.
The seminar's keynote speaker, John May, chairman emeritus of the Angel Capital Association and co-chairman of the World Business Angel Association, said the "jury is out nationally" on whether state tax credit systems work for linking angel investors with entrepreneurs who have businesses and ideas that are scalable, or easily able to grow rapidly.
"I think it's worth a shot," May said. "I'm neutral on whether it makes a material difference in the number of companies that get funded. It's more cosmetic than it is fundamental."
Nitz and Steven Clinch, a Nebraska Angels member and retired heart surgeon, said individuals from the group have put money toward companies in entertainment, media, technology ideas from UNO and the University of Nebraska Medical Center, a wholesaler, software companies and a medical device firm. The group doesn't invest from one pool of money and doesn't make all of its investments public.
The angel investment law isn't going to change the type of investments the Angels make or consider, Clinch said.
"I don't think it's going to hurt anybody," he said, "but I don't think I'm making a deal because of it."
Contact the writer:
402-444-1414, ross.boettcher@owh.com
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