By John Lanahan, LaunchTN Director of Capital Formation
Back in 2016, Launch Tennessee CEO Charlie Brock and team analyzed investment data and saw a pressing need in the Tennessee capital continuum: A lack of investors who write the critical first checks into startups, also known as “angels.” This shortage was concerning because without a vibrant pool of angels willing to bet on Tennessee entrepreneurs, we risk losing the best and brightest creating the next generation of jobs in the state.
To help increase the number of Tennessee angels, Launch Tennessee worked with the State Legislature to pass the Tennessee Angel Tax Credit, which provides a 33% tax credit on the Hall Income Tax for individuals who invest in Tennessee-based startups. The ATC was designed to increase the pool of early-stage capital, get new investors engaged in the ecosystem and give entrepreneurs in our state an additional selling point when pitching their companies for investment.
Fast forward a year, and we’re excited to announce that response to the ATC has been incredible! For 2017, we issued $1.84m worth of credits, tied to $6.3m of capital invested in Tennessee companies! Twenty-nine companies attracted investment from angels benefitting from the program, receiving an average check size of $73,055 from 68 unique angel investors. These 68 investors could receive up to $50,000 in tax credits and many invested in multiple companies. This is significant because, as awareness of ATC grew, angels wanted to maximize their amount of eligible credits for 2017 and looked for other pre-qualified companies to invest in. This created a multiplier effect, increasing the number of Tennessee investments that otherwise might not have been made.
To track the amount of new engagement in the ecosystem as a result of ATC, we categorized investors who had not written a check in the last two years as “new angels”. Given that the intention of ATC was to increase the pool of available capital, we’re excited to announce that 38% of investors were new!
The ATC refills this year, with a maximum of $4m worth of credits available in 2018. The 51 pre-approved companies from 2017 are also still eligible to receive credits.
Many investors prefer to invest together through angel groups or special purpose vehicles, and we’re working towards to getting these approved for the credit in 2018.
Creating programs such as Angel Tax Credit to address gaps in the capital continuum is a critical component of our work to make Tennessee the most startup-friendly state in the country. Expect more to come in 2018!
More information on the Angel Tax Credit, including company and investor applications, is available at launchtn.org/atc.