Investors in early stage companies in South Carolina don’t need to be South Carolina tax payers to receive the substantial 35 percent tax credit available via the High Growth Small Business Access to Capital Act passed the first week in June.
Matt Dunbar, managing director of the Greenville, SC-based Upstate Carolina Network , an angel investor group, tells the TechJournal that investors who don’t pay SC taxes can sell their credit to a business that does. “It’s transferable,” he says. “Folks from out of state can sell the credits and benefit even if they don’t have an SC tax liability.”
Dunbar says the state is in the process of setting up a marketplace for that and it will be available within weeks.
The SC bill is meant to encourage individual angel investors to put money in early-stage, high growth businesses and increase the number of quality, high-paying jobs in the state.
Annual cap per investor
It’s also intended to support businesses commercializing technology developed in the states colleges and universities.
There is an annual cap of $100,000 per investor and $5 million in aggregate. Investors must meet the U.S. Securities and Exchange Commission’s definition of an accredited investor, and no brokerage fees or commissions are allowed.
For businesses to qualify for investments under the bill, they must be headquartered in the state; started within the last five years; employ fewer than 25 people and accrue annual revenues of less than $2 millio
Similar legislation works in other states
The legislation, which the SC House passed 94-10, is similar to bills in about 25 other states, including Georgia and North Carolina. Data from the similar legislation in other states shows the programs are effective in attracting capital, creating jobs, and producing revenue for the state.
The reason such legislation is needed is a persistent early-stage funding gap that leaves many startups struggling to nab seed or Series A financing. Venture Capital firms increasing want the potential for $100 million plus exits and firms with substantial revenue or profitability before they invest, while many angel investors were subdued by the recession.
Dunbar says the total amount available via the bill, $5 million, “Is a great place to start. We’re going to track the metrics so that we have data to go back and increase that amount if it does what we think it’s going to do.”
We recently interviewed Dunbar about the trend of angel investors to form syndicates and do larger deals with wider geographic spread than the typical backyard deals that angel investors have preferred.
