Article published Nov 15, 2005
'Angels' relieve growing pains
Legislation urges investing in early-stage companies
Marsha Sills msills@theadvertiser.com
Start-up companies in need of a boost from investors now have a new state tax credit program to lure investors. The Louisiana Angel Investor Tax Credit Program, enacted with Tax Act 400, offers investors a 50 percent tax credit when they pool money into early-stage businesses. Bizzuka Inc., a Lafayette technology company, is the first in line to qualify for the new program. About $500,000 to $1 million in investments is in the pipeline for the company after the tax law was passed by the Legislature, said John Munsell, CEO of Bizzuka Inc. The company provides componentbased Web and intranet solutions. "It's pushed a lot of guys who were on the fence to go ahead and invest," Munsell said. For a company trying to get off the ground, it can be difficult to find venture capital, he said. "Most don't want to take risks until you get about $3 (million) or $4 million in sales. We've been told, 'You have an exciting business plan, come back to us when you have $3 or $4 million in sales,' " he said. The plan targets wealth-creating businesses that can prove 50 percent of their sales come from outof-state businesses. Some of the businesses excluded from the program include retail sales, real estate and those offering financial services, like venture capital funds, according to the legislation.
Brad Kemp/bkemp@theadvertiser.com
Bizzuka in Lafayette is among the companies taking advantage of new legislation to draw investors, said John Munsell, CEO.
More information
Learn more To read the Angel Investor Tax Credit Program legislation, visit www.legis.state.la.us and search the 2005 regular session for HB 627. What is the Angel Investor Tax Credit? A state tax credit program in which investors receive a 50 percent tax credit for investments into emerging state businesses. The tax credit is divvied into 10 percent credits received over 50 years. Who runs the tax credit program? The Louisiana Department of Economic Development. What is the Louisiana Angel Network? A newly formed nonprofit that is an advocate of the state's tax credit program. The nonprofit works to create a network of investors interested in investing in earlystage entrepreneurial businesses. Network members pay a fee and must dedicate a certain amount of investments.
"It's a brilliant piece of legislation because it encourages companies not to just feed off the Louisiana economy," Munsell said. "It encourages companies to fuel Louisiana economy by looking outside for revenues." One of the major advocates for the new tax plan was the Louisiana Angel Network, a nonprofit with a mission to pool a network of investors into startups. "Across the nation these networks exist and they basically serve as a way for investors that qualify as accredited investors to make investments and share risks," said Dawn Starns, former director of the Louisiana Angel Network. The term "angel" is an industry term, Starns said. "It's people who are willing to take the risks and they know they're not going to see any return in the near future," Starns said. "They come in like a little angel and help out and get the company to the next level." Although the state is patching a nearly $1 billion deficit in lost revenue following hurricanes Katrina and Rita, it's not expected that the investor program will be impacted.
What is the Louisiana Angel Network? A newly formed nonprofit that is an advocate of the state's tax credit program. The nonprofit works to create a network of investors interested in investing in early-stage entrepreneurial businesses. Network members pay a fee and must dedicate a certain amount of investments. How does an investor qualify? Investor must qualify as an "accredited investor" under Rule 501 of the Securities Exchange Commission regulations - individual net worth or joint network with spouse exceeds $1 million, or individual income exceeds $200,000 in past two years, or joint income with spouse exceeds $300,000. How does a business qualify? Businesses must be approved by the Louisiana Department of Economic Development for the program as a Louisiana Entrepreneurial Business. One of the stipulations is that 50 percent of the businesses' revenues come from outof-state business. Sources: Louisiana Angel Network, www.louisianaangel network.com and State of Louisiana Legislature, www.legis.state.la.us
"What the state needs to do is bolster the Louisiana economy," Munsell said. "The only way to do that is to somehow help fuel Louisiana companies to grow. What better way to do that than to encourage investment in Louisiana companies and encourage those Louisiana companies to generate revenues outside of the state."