Angel Investor Tax Credit Program Would Be Godsend to Kentucky Businesses
Friday, January 24, 2014

In November 2013, Governor Beshear announced the launch of Kentucky Angel Investors Network, a virtual network that connects companies in need of funding with potential investors from across the state. The network holds monthly on-line meetings wherein investors are given the opportunity to view virtual presentations by entrepreneurs who already have a lead investor and negotiated term sheet. The hope is that investors (who must be accredited in accordance with SEC Rule 501 Regulation D) take interest in the business venture and provide funding that can send the start-up to the next level.

The network is an innovative and industrious resource for businesses, but the General Assembly is hoping to make it more investor-friendly with a bill aimed at providing an angel investor tax credit. In fact, legislators have tried for several years to push through a measure allowing for such a tax, but previous efforts have languished. The 2012 bill never made it out of the House and the 2013 bill, though largely supported, was overshadowed by 11th hour pension reform.

Now, the endeavor has again materialized, this time as House Bill 37. The bill would require the Kentucky Economic Development Finance Authority ("KEDFA") to establish the tax incentive application process and cap the total amount of tax credits available in all years at $40 million. Certified businesses and investors with awarded credits would be identified on a website maintained by the KEDFA.

Investing in start-ups is risky business - many fail to become profitable, but those that do can yield big rewards. Some of America's largest companies, including Google, Amazon, and Starbucks got a push from angel investors. A credit would allow investors to apply for an income tax credit for qualifying investments, thus off setting some of the inherent risks. It is a win-win situation: investors participate when they can minimize their potential for liability and businesses locate in areas where capital is accessible. Other states, including bordering states Ohio and Indiana, have a tax credit for angel investments. For this reason, these states are currently more enticing to emerging companies. House Bill 37 will allow Kentucky to attract, and keep, businesses here at home. Let's hope 2014 is the year that the bill becomes law.

 

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