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States Take Action to Capitalize on Angel Capital Recovery

January 09, 2014

Angel capital has long played a vital role in state and regional innovation economies, but recent trends in investment capital have pushed angel investment to the fore. As the supply of seed stage venture capital declines in many parts of the country, angels have stepped in to bridge early stage funding gaps for technology startups. The proliferation of angel investors and groups over the last few years has outpaced the recovery of the venture capital industry since early 2009, according to data from the PricewaterhouseCoopers/National Venture Capital Association Moneytree Survey and the University of New Hampshire Center for Venture Research. In the midst of these changes, many states have stepped up their efforts to attract and incentivize angel investment. Recent initiatives in Minnesota, Florida, Kentucky and West Virginia seek to book seed and early stage capital by working with angel investors.

Minnesota Gov. Mark Dayton recently announced the creation of a new $6.7 million Angel Loan Fund to augment the state’s Angel Tax Credit. Both initiatives operate with federal support through the State Small Business Credit Initiative (SSBCI). The new loan program will be administered by the Minnesota Department of Employment and Economic Development (DEED) and offer no-interest loans of up to $250,000 for startup businesses. The loans may be used to cover business startup costs, working capital, equipment purchases, construction, inventory financing, franchise funding and more. DEED hope to use the fund, in conjunction with the angel tax credit, to generate up to $261 million in early-stage investment over the next three years. In order to be eligible for the loans, businesses must first apply be certified through the tax credit program. The loan program is intended to help businesses survive the earliest stages of development so that they can become appealing targets for investors and to reduce the risk associated with investment.

Florida’s Institute for the Commercialization of Public Research has announced a different sort of initiative to encourage angels and other early stage investors. The institute has formed a formal partnership with Dawson James Securities, Inc. to increase financing assistance for innovation-based companies. The partnership, to be known as the Alliance, will match companies that spin out of the state’s universities and research centers with financing opportunities with angel and venture investors. By formalizing the partnership, the Institute hopes to build a strong pipeline of technology startups and expand the state’s angel investor base. The Alliance will help angels overcome the difficulty of tracking down high-quality deals and put them in contact with other investors.

Getting angel investors to work together is also the goal of Kentucky’s recent early stage investment initiative. This week, Gov. Steve Beshear included the creation of the Kentucky Angel Investors Network in his State of the Commonwealth Address as a key part of the state’s innovation and entrepreneurship strategy. The network was launched in November and will bring together startups and accredited investors through monthly online meetings. The first meeting is scheduled later this month.  

West Virginia is seeking to expand the availability of angel capital with the launch of a new $3 million fund, created in partnership with the Appalachian Regional Commission (ARC). The West Virginia Growth Investment fund began operations in November and will offer seed and early stage equity financing to startups that cannot otherwise secure sufficient capital. Businesses and investors will also be able to access assistance and mentoring through the state’s Angel Investor Network, which championed the creation of the fund. ARC officials anticipate that additional funding may be added to the fund in the near future, according to the West Virginia Metro News.

Florida, Kentucky, Minnesota, West Virginiaangel capital, tax credits