New state investor tax credit seeks to spur more angel investing

Angel investors hope passage in Lansing of an investment tax credit can help boost their ranks.

Under legislation approved this week in the lame-duck legislative session, angel investors could take a 25 percent tax credit on their investment of up to $250,000 in a young company based in Michigan.

The credit, in effect through January 2013, is designed to spur an increase in seed and early-stage capital for startup businesses at a time when Michigan desperately needs to create jobs.

Jody VanderWel, president of Holland-based Grand Angels, sees the new tax credit potentially leading to current angel investors becoming involved in more deals, especially those where they may have been “a little on the fence” on an investment, and spurring more high net worth individuals to become angel investors.

“I hope this tax credit will make a few people feel as if they’re comfortable to take the risk of becoming angel investors,” VanderWel said.

There are presently six angel networks in Michigan, including Grand Angels and Kalamazoo-based First Angels. A seventh statewide network is under formation by the Detroit-based Michigan Women’s Foundation that will support and invest in women-owned businesses.

Grand Angels has 34 members who have invested $5.8 million in 16 deals since 2004. Members of the angel network are close to closing on its 17th deal, VanderWel said.

The angel network wants to grow to 50 investors, she said. The tax credit could also encourage current angels to recruit new members in a network.

“That certainly would be an opening line — ‘Let me talk to you about Grand Angels, and, oh, by the way, are you aware …?’” VanderWel said.

A previous tax credit in the state was rarely used because it set a minimum threshold of $100,000 per investment, VanerWel said. Individual angel investors typically put $25,000 into a deal and some investments are as low as $10,000, she said.

The new credit requires a minimum investment of $15,000. Investments must get certification from the Michigan Strategic Fund, which is allowed to certify up to $9 million in credits in a single year and up to $250,000 for each business.

Eligible investments must go to start-up companies that are based in Michigan, are less than five years old — or less than 10 years old if they are spun out of a university or research institute — and have less than 100 full-time equivalent positions and a pre-investment valuation of less than $10 million.

The state Senate approved the tax credit on Nov. 30 on a 34-0 vote. The House approval followed two days later on a vote of 85-14.

Gov. Jennifer Granholm said she intends to sign the bill.

“This bill moves Michigan forward by encouraging new investment in companies that are critical to our economic growth,” Granholm said. “We must create an environment where entrepreneurs and innovators can thrive, and the legislature deserves praise for taking swift action to help us do that.”

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