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Wednesday, February 17, 2010

Time for an Alabama Angel Investor Tax Credit and maybe more

Alabama's economy ranked dead last in Economic Dynamism according to the 2009 Astra report.   That rank was not much better in the other entreprenurial indicators.  This is despite ranking 21st in Federal R&D expenditures at colleges and universities.

To be sure Alabama has made some significant strides in economic development.  The auto industry has certainly been a good catch for Alabama's EDO.

Also, in February 2004, the Alabama Certified Capital Company Program (CAPCO) created six new private equity funds. As a result, Alabama had $100 Million in new private equity dollars spread between six funds which range in size from $11 to $20 million each. Then, in 2008, an additional $100 Million in private equity dollars spread between six funds became available. The result was $200 Million of new venture capital available to qualified businesses.

Why then, in a state that contains some leading science and technology universities, aren’t new innovative technology companies springing up at the pace of other states?   It’s because the new companies can’t find seed capital investors the way they can in other states.  Without seed capital for high growth startups, there are very few later stage high growth startups that can make use of the CAPCO investments.  The recent economic meltdown in the banking industry has only intensified this investment gap, as investment firms that used to look at earlier stage companies can now look at more established deals because traditional bank financing is not readily available.  
Some 20 or so states have already seen the need to encourage investors to fill this investment gap.  Those are many states where the government offers an Angel Investor Tax Credit — a tax credit that is given to people who invest in small but emerging companies.
  • Minnesota is trying to pass a Angel Tax Credit (Link)
  • ACA study on Investor Tax Credits  (Link)
If Alabama legislators want to really do something to encourage good organic economic growth in our state, they should look at what other forward looking state's are doing and provide some encouragement for our local investors to put their invesment dollars to work at home.

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