NASHVILLE — Launch Tennessee (LaunchTN) recently announced that the The Angel Tax Credit Incentive Program, intended to increase investment in Tennessee startups, launched on Jan. 1, 2017. It will help to strengthen the state’s small business landscape by providing a tax credit to investors who support promising young companies.
Passed by the Tennessee General Assembly in 2016, the program applies a 33% tax credit to an investor’s Hall Income Tax liability. Individuals, or “angel investors,” who invest a minimum of $15,000 of their own money in qualified early-stage Tennessee companies are eligible for the tax credit.
For 2017, the state allocated $3,000,000 in tax credits to investors, with a maximum of $50,000 available per individual angel investor. Launch Tennessee advocated for the tax credit in the state legislature to encourage early-stage capital formation.
“Launch Tennessee takes an aggressive, market-based approach to growing the state’s entrepreneurial ecosystem,” said Charlie Brock, president and CEO of Launch Tennessee. “That includes partnering with lawmakers to build programs that encourage investment in high-growth companies. Increasing access to resources such as capital is Launch Tennessee’s priority in fostering the entrepreneurship that creates jobs. This tax credit is a high-impact way to add value to the entire ecosystem.”
Startups must first qualify to be eligible for an angel investment that will then yield the tax credit for the angel investor; the first step is for the startup to undergo a rigorous business evaluation to expose weaknesses it may address to strengthen the value proposition for the angel investor.
“After the thorough vetting process by Launch Tennessee to ensure companies meet criteria defined in the legislation, qualified startups bring an additional selling point in the fundraising process to angel investors,” said John Lanahan, Director of Capital Formation at Launch Tennessee.
Since program launch on Jan. 1, 2017, Launch Tennessee has approved $275,000 in credits to investors, representing $825,000 in new angel investment across six Tennessee companies.
“We’re excited to see so many companies raise significant funds right away via this tax credit,” Lanahan said. “In one instance we’ve been told it was the deciding factor for an angel investor to write the check.”
Another benefit of the tax credit is that it mitigates the negative impact of potential losses that are inherent in investing in early-stage companies that lack a track record of revenue or customers.
“Investing in early-stage startups can be risky, and we know that limiting an angel investor’s downside via this tax credit ultimately creates a greater incentive to invest,” said Lanahan. “The ultimate goal is to increase the amount of capital available to Tennessee entrepreneurs and we believe the Angel Tax Credit does just that.”
Visit LaunchTN.org/ATC for more information on the Angel Tax Credit.
Launch Tennessee is a public-private partnership that fosters entrepreneurship, with the goal of making Tennessee one of the most startup-friendly states in the country. It focuses on entrepreneurship, capital formation, rural outreach and commercialization and is funded by a grant from the State of Tennessee. For updates on Launch Tennessee programming, events and resources, visit LaunchTN.org.