Proposed Angel Tax
State of Tennessee Economic Advancement
The Angel Network of Sumner County has drafted the following document
addressing the need for an Angel Tax Credit in an effort to attract local Angel
Capital, whether individual or institutional, into state specific funds focused on
funding high growth local ventures in the seed or start-up phases.
Rachael Qualls, Founder and CEO
Angel Network of Sumner County
Table of Contents
I. Introduction .........................................................................................................................3
II. About Angel Capital .........................................................................................................3
III. Tennessee’s Current Economic Advancement as Compared to Other States .....................4
IV. Tennessee Start-up and Seed Investing Market .................................................................6
V. Review of Other State Credits ..........................................................................................7
A. North Carolina Angel Tax Credit Program........................................................................7
B. Maine Seed Capital Tax Credit Program ...........................................................................8
C. Arizona Angel Investor’s Tax Credit – SB 1335 ............................................................. 10
D. Louisiana Angel Tax Credit ........................................................................................ 11
VI. Proposed Credit for Tennessee........................................................................................ 13
VII. Access to Capital for Entrepreneurs (ACE) Act (H.R. 578) Fact Sheet ............................ 14
VIII. 2007 Investment Bill Section-by-Section .................................................................... 15
A. Title I. SBIC Program .................................................................................................... 15
B. Title II. New Markets Venture Capital Program ............................................................. 15
C. Title III. Angel Investment Program .............................................................................. 17
D. Title IV. Surety Bond Program ................................................................................... 18
E. Title V. Venture Capital Investment .............................................................................. 19
F. Title VI. Regulations ..................................................................................................... 19
There are three steps that each of the top three states in economic advancement, California, New
York and Texas has taken to reach this level of success and they are as follows:
1. Attract Capital: each state initiated programs and policies to attract private equity funds and
capital to their regions. Each state also set up tax breaks for Angel investors to provide seed
and start-up capital to local entrepreneurs.
2. Attract Innovation: By providing a source of capital for high growth start-up ventures, each
state was able to attract specialty companies to their regions.
3. Attract Talent: Once these companies were funded, they each provided a demand for
highly specialized talent. In order to meet the hiring demands of this new innovation, local
Universities were able to offer programs in order to attract the most talented student
population in the country.
As one can see, the ability to ride the next wave of economic advancement within our country lies
within a state’s ability to attract seed and start-up capital to its region. If Tennessee can provide the
right incentives to mobilize its local resources, a.k.a Angel investors being individual and
institutional, therein lies incredible potential for Tennessee to be the next leader in innovation and
local economic advancement in the entire United States.
II. About Angel Capital
Angel investors are wealthy individuals who invest in high risk, early stage ventures by using a
portion of their total investment portfolios to provide emerging companies with seed and startup
capital through direct, private investments. Their goal is to achieve higher returns than typical public
markets provide. Most angels are active investors who contribute their time and experience, as well
as offer introductions to valuable contacts essential to the company's success.
In the financial world today, angel investors are a critical and essential part of a healthy economy,
particularly for the establishment and growth of early-stage companies. Experts estimate that, on a
cumulative basis, the level of investments made by angels over the last 30 years has been double that
of investments made by venture capitalists. 1 The Center for Venture Research (the “CVR”) at the
Whittmore School of Business and Economics at the University of New Hampshire estimates that
angel investments for 2003 were approximately $18.1 billion in 42,000 deals, down from the
historical — last 10 years — investment trend of approximately $30 billion per year in 50,000
ventures. This investment amount is comparable to venture capital funds, which, according to the
According to statistics published by the National Venture Capital Association
and the Center for Venture Research, University of New Hampshire
National Venture Capital Association, invested $18.2 billion in 2003, with only 2% of those dollars
in seed or early-stage investments.
III. Tennessee’s Current Economic Advancement as Compared
to Other States
Indicator Rank Score
Overall* 39 52.18
Aggregated Knowledge Jobs 39 8.26
Information Technology Jobs 34 1.2%
Employment in IT occupations in non-IT industries as a share of total jobs.
Managerial, Professional & Tech Jobs 42 23.1%
Managers, professionals, and technicians as a share of the total workforce.
Workforce Education 26 48.60
A weighted measure of the educational attainment (advanced degrees,
bachelor's degrees, associate degrees, or some college course work) of the
Education Level of the Manufacturing Workforce 46 0.39
A weighted measure of the educational attainment of the manufacturing
Aggregated Globalization Score 19 10.45
Export Focus Of Manufacturing 30 $26,083
Manufacturing export sales per manufacturing worker.
Foreign Direct Investment 9 5.7%
The percentage of each state's workforce employed by foreign companies.
Aggregated Economic Dynamism Scores 24 9.63
"Gazelle" Jobs 34 12.6%
Jobs in gazelle companies (companies with annual sales revenue that has
grown 20 percent or more for four straight years) as a share of total
Job Churning 19 20.2%
The number of new start-ups and business failures, combined, as a share of
all establishments in each state.
Initial Public Offerings 24 4.60
A weighted measure of the value and number of initial public stock offerings
of companies as a share of gross state product.
Aggregated Digital Economy Scores 43 7.64
Online Population 34 52.5%
The percentage of adults with Internet access in each state.
Commercial Internet Domain Names 30 0.58
The number of commercial Internet domain names (".com") per firm.
Technology in Schools 37 1.33
A weighted measure of five factors measuring computer and internet use in
Digital Government 43 2.07
A measure of the utilization of digital technologies in state governments.
Online Agriculture 47 1.30
A measure of the percentage of farmers with Internet access and who use
computers for business.
Online Manufacturers 22 86.5%
The percentage of manufacturing establishments with Internet access.
Broadband Telecommunications 30 2.78
A measure of the use and deployment of broadband telecommunications
infrastructure over telephone lines.
Aggregated Innovation Capacity 37 7.27
High-Tech Jobs 39 2.6%
Jobs in electronics manufacturing, software and computer-related services,
telecommunications, and biomedical as a share of total employment.
Scientists and Engineers 35 0.34%
Civilian scientists and engineers as a percentage of the workforce.
Patents 42 0.34
The number of patents issued to companies or individuals per 1,000 workers.
Industry Investment in R&D 28 1.01%
Industry investment in research and development as a percentage of Gross
State Product (GSP).
Venture Capital 37 0.13%
Venture capital invested as a percentage of GSP.
IV. Tennessee Start-up and Seed Investing Market
The table below shows the amount of venture capital, not Angel investments, invested in
Tennessee in the start-up and seed rounds as compared to that of North Carolina.
As the chart below illustrates, total venture capital invested in North Carolina since 1996 is
just over $221 million. However, since a tax credit was made available to Angel investors
in 1999, Angel investment activity has increased by $1.72 billion.
PricewaterhouseCoopers/National Venture PricewaterhouseCoopers/National Venture
Capital Association MoneyTree(tm) Report Capital Association MoneyTree(tm) Report
For State of Tennessee For State of North Carolina
# of # of
Year Investment Amount Year Investment Amount
1996 $ 5,100,000.00 3 1996 $ 19,199,900.00 15
1997 $ 8,000,000.00 3 1997 $ 9,680,000.00 8
1998 $ 8,915,500.00 3 1998 $ 55,842,600.00 19
1999 $ 1,155,000.00 1 1999 $ 46,284,000.00 21
2000 $ 5,000,000.00 2 2000 $ 45,361,000.00 19
2001 $ - 0 2001 $ 5,700,000.00 5
2002 $ - 0 2002 $ 6,123,000.00 7
2003 $ - 0 2003 $ 2,116,000.00 5
2004 $ - 0 2004 $ 3,999,900.00 3
2005 $ - 0 2005 $ 3,365,000.00 4
2006 $ 2,900,000.00 2 2006 $ 17,735,000.00 4
2007 $ 400,000.00 1 2007 $ 5,700,000.00 2
Total $ 31,470,500.00 15 Total $ 221,106,400.00 112
As the chart illustrates, Tennessee is falling significantly behind in funding local start-up
In an effort to encourage start-up financing, over 22 states have established tax credits for angel investors. Depending
on the state, the credits range from 15% to 50% of the amount invested. Each state has unique provisions. Louisiana
requires angels to demonstrate that at least half of the sales recorded by the businesses they funded come from out of
state. Arizona prohibits investors who finance embryonic stem cell research. These programs have become more popular
as a smaller share of institutional venture capital funds is invested at the seed stage—less than 2%. By far the largest
sources of funds for seed capital are angel investors.
V. Review of Other State Credits2
A. North Carolina Angel Tax Credit Program
In an article published by the State Science and Technology Institute
North Carolina does not, at first glance, seem to be a venture capital underperformer. In 2006,
venture capitalists invested close to $510 million in North Carolina, almost $60 million of which was
invested in seed and early-stage businesses, according to the Pricewaterhouse Coopers Moneytree
Survey of VC investment. However, while the state ranks 12th in seed/early-stage investment, many
in the state perceive the lack of seed funding to be a major obstacle to economic growth.
Earlier this year, a survey conducted by the Wilmington-based Council on Entrepreneurial
Development (CED) revealed that access to capital, particularly to seed-stage equity investment, was
one of the top concerns of entrepreneurs in the state.
The North Carolina Small Business and Technology Development Center (SBTDC) recently
announced a new plan to make capital available to entrepreneurs and begin building a stronger early-
stage investment industry. In 2003, SBTDC launched the Inception Micro Angel Fund (IMAF) in
the Piedmont Triad area of North Carolina, with an investment zone that included Greater North
Carolina and selected areas of South Carolina and Virginia. SBTDC now plans to build on the
success of IMAF-Triad by creating a statewide network of six angel funds that will provide capital to
new businesses in every part of the state.
The new funds will be able to provide local support for nascent businesses and improve the stream
of promising mid-to-late-stage companies for venture capital investment. This family of seed-stage
funds will target technology-based companies and will provide mentoring, counseling, and
networking opportunities to their investees. Each of the six funds will use a similar, member-
By Daniel Sandler, Professor at the Faculty of Law, The University of Western Ontario, London; senior research
fellow of the Taxation Law and Policy Research Institute, Melbourne; associated with Minden Gross Grafstein &
Greenstein LLP, Toronto. The comments in this chapter are derived from Daniel Sandler, Venture Capital and Tax
Incentives: A Comparative Study of Canada and the United States (Toronto: Canadian Tax Foundation, 2004)
(“Sandler VC Study”).
managed structure and will seek investments from larger angel funds, venture funds and individual
The IMAF-Triad fund is now in the process of raising $2 million for its second round and primarily
engages with investors from the medical and dental fields. Individual angels can buy into the fund
with a minimum investment of $15,000; the level is $30,000 for angel groups and VC firms. Typical
investments will range between $25,000 and $100,000.
The IMAF Source Capital Fund will provide the capital for each local fund and will follow up on
successful local investments with additional financial and advisory support. One of the new funds
(ITAF-RTP) will focus on investments in the Research Triangle Park region, including spin out
companies from Duke University, UNC Chapel Hill, associated medical schools from both of those
universities, North Carolina Central University, and NC State University.
In 2005, CED reported that the Research Triangle region raised 81 percent of all venture investment
in the state, including seven of the top 10 deals that year. The areas of the state outside of the
Research Triangle and Piedmont Triad regions, which will be served by the other four new funds
(IMAF-West, IMAF-East, IMAF-Coastal, and IMAF-Kannapolis), received only 18.5 percent of
venture capital investment that year. SBTDC officials hope that the new family of funds will provide
a more even distribution of capital and other business resources across the state.
One of North Carolina's previous efforts to build a strong statewide angel marketplace is now up for
extension at the state assembly. The Qualified Business Venture Tax Credit (QBV) is estimated to
have raised $1.7 billion in equity financing from when its creation in 1999 through last year,
according to data from the North Carolina Biosciences Organization and the North Carolina
Entrepreneurial Association. The credit is scheduled to expire at the end of this year.
Under the current legislation, angel investors may receive a 25 percent personal income tax credit for
individual investments in businesses with less than $5 million in annual revenue. The QBV credit
encourages investment in new businesses engaged primarily in manufacturing, processing,
warehousing, wholesaling, or R&D. State Representative Bill Daughtridge recently introduced a bill
extending the credit through 2010, noting that before it existed the state frequently lost
entrepreneurs and small businesses to other states. Though angel investment fell dramatically in
North Carolina following the tech bust in the early part of the decade, investment in QBV-eligible
companies has grown more than 60 percent since 2004.
B. Maine Seed Capital Tax Credit Program
This program is designed to encourage equity and near equity investments in young business
ventures, directly and through private venture capital funds. FAME may authorize State income tax
credits to investors for up to 60% of the cash equity they provide to eligible Maine businesses.
Investments may be used for fixed assets, research or working capital.
Businesses located in Maine
Investors must own less than an aggregate of 50% of the business
Principal owners and their immediate relatives are not eligible
Annual gross sales of less than $3 million
Business must either: 1) be a manufacturer; 2) provide goods or services with 60% of sales
derived from outside the State or to out-of-state residents; 3) develop or apply advanced
technologies; 4) bring significant permanent capital into the State
Must be the professional, full-time activity of at least one of the principal owners
Tax credits equal to 40% of the investment - 60% for investments made in businesses
located in high unemployment areas (contact FAME for a current list of eligible areas)
An investor may provide up to $500,000 per business
Aggregate investment limit per business is $5 million for which tax credit may be received
Investments must be at risk for 5 years
Credits must be taken in increments of 25% (of the credit) per year for the 4 years following
the investment. Credits used cannot exceed 50% of the total tax due by the investor for that
taxable year before application of the tax credit. To the extent this limitation requires the
taxpayer to take the credit over more than 4 years, unused credits may be carried forward no
more than 15 years.
For a more thorough description of the Program and any limitations thereon, refer to
Chapter 307 of the FAME Rule.
Special rules for venture capital funds:
Investors may provide up to $1,000,000 per venture capital fund in any consecutive 3-year
Investors in any one venture capital fund cannot receive more than $5,000,000 in credits, but
may invest more without credit.
Investors in certain qualifying venture capital funds may receive one half of this credit (up to
20%) at the time of investment.
The remaining amount of an investor's tax credit will be awarded when and if the venture
capital fund invests sufficient monies in an eligible Maine business. Credits will be revoked if
not substantiated within 3 years.
Investment into venture capital funds must be at risk and principal may not be paid without
FAME consent for 5 years. Dividends, royalties, interest, stock options or warrants and
other forms of return, which are not in the nature of return of principal, are allowed.
Businesses receiving investments for which credits are issued, must file annual reports with
information on the total investments received, number of employees and jobs created/retained,
annual payroll and total sales revenue. Failure to file reports will result in ineligibility and possible
revocation of credits issued in the reporting period (the prior year).
$250 per business (one time fee)
$100 per investor, per investment
$250 per venture capital fund
C. Arizona Angel Investor’s Tax Credit – SB 1335
Purpose – to expand early stage investment in Arizona’s small businesses.
Background - Small businesses comprise more than 80% of Arizona’s economy. Assisting small
businesses as they grow, particularly those well positioned to create high wage jobs, is critical to
Arizona’s economic growth.
A significant area of need for small businesses is access to “early-stage” equity capital when building
their operations. This is so because they are too small to secure adequate financing through bank
loans and other traditional sources of capital, or enter the stock market as a publicly traded
Private equity investments by individuals and specialized “angel” funds and venture capital firms can
be used by small businesses to gain access to these resources. Yet, as the economy boomed in the
latter half of the decade and “early stage” and “venture” capital investments soared nationwide,
Arizona fell behind.
Arizona cannot afford to lose its knowledge-based small businesses to other states. The critical
shortage of equity capital for new businesses in Arizona represents a serious shortcoming and, as a
result, small, homegrown businesses face difficulties in expanding operations and taking new ideas,
products and services to market.
Description of Program - A state tax credit is made available to investors who invest in early-stage
“qualified small businesses.” The credit is 30% of the investment, increasing to 35% for investments
in bioscience companies and companies located in rural Arizona. The credit may be offset against
AZ taxable income in equal amounts over a 3-year period. The credits are not transferable.
A “qualified investment” must be an equity investment in a minimum amount of $25,000 per
investment and each investor is limited to a maximum of $250,000 in investments in all qualified
small businesses eligible for the credit per year. Credits are not available to persons who already hold
30% or more of the equity of a qualified small business.
A “qualified small business” must:
1. Have at least a portion of its operations in Arizona;
2. Have at least two full-time principal employees or full-time independent contractors in
3. Not have a principal business in retail, restaurants, real estate, professional services, personal
services or health care services;
4. Have total assets less than $2 million; and
5. Have received not more than $2 million in investments eligible for the credit.
The total tax credits are capped at $20 million over a 5-year period with no general fund impact in
fiscal year 2006. Credits will be available to investors on a first-come, first serve basis.
D. Louisiana Angel Tax Credit
The Angel Investor Tax Credit Program Act of 2005 (Act 400) enhances the Louisiana
entrepreneurial business environment by rewarding qualified individual investors for investing in
early stage, wealth-creating businesses. Investors can receive refundable Louisiana income or
corporation franchise tax credits of up to 50 percent of the money invested. The total angel investor
tax credits shall not exceed $5 million. Qualification for the tax benefits of Act 400 requires that
both the entrepreneurial business and the investor(s) meet the following specific certification
Louisiana Entrepreneurial Business
a fully developed business plan
the principal business operations are located in Louisiana including Louisiana as the
primary place of employment for the employees of the business;
the business operates as a person defined as an “employer” within the meaning of
the state's Quality Jobs Rules;
the number of jobs to be created, and the title and salary ranges of those jobs;
the business is not primarily engaged in the business of retail sales, real estate,
professional services, gaming or gambling, natural resource extraction or
exploration, or financial services including venture capital funds;
the business has a plan or progression through which more than 50 percent of its
sales will be derived from outside Louisiana ;
the amount of investment requested and a Source and Use statement showing that
the investment funds will be used for capital improvements, plant and equipment,
research and development, working capital for the business or other business activity
approved by LED; and
the Louisiana Tax Identification Number of the business.
UNDER NO CIRCUMSTANCES SHALL THE LED SECRETARY'S CERTIFICATION OF
THE APPLICANT AS A LOUISIANA ENTREPRENEURIAL BUSINESS BE CONSIDERED
OR IMPLIED TO BE AN ENDORSEMENT OF THE BUSINESS OR ANY INVESTMENT
IN THAT BUSINESS, AND THE APPLICANT SHALL SO ADVISE ALL INVESTORS OF
Accredited Investor - To qualify for an angel investor tax credit, all of the following
qualifications shall be required of each applicant:
the investment in the Louisiana Entrepreneurial Business must be an investment
that is at risk and not secured or guaranteed;
the funds invested by the applicant cannot have been raised as a result of other
Louisiana tax incentive programs, funds pooled or organized through capital
placement agreements or as the result of illegal activity;
the angel investor, as defined, cannot be the principal owner of the business who is
involved in the operation of the business as a full-time professional activity;
the investment in the Louisiana Entrepreneurial Business by the applicant must be
maintained for three years;
an Accredited Investor shall be defined as:
an Angel Pool, all of whose participants shall be Accredited Investors;
a natural person who has individual or joint net worth that exceeds $1 million at the
time of the investment and individual income exceeding $200,000, or joint income
VI. Proposed Credit for Tennessee
Purpose: To encourage institutional investment in Tennessee-based start-up ventures. The
purpose of Angel funds being the entities with which the credit is tied is to minimize the
administrative burden on the state and to build up funds to supplement and support the individual
and Angel network investments already being made.
Tax credits equal to 50% of the investment made by the Corporation into the Angel Fund
not to exceed $500,000 per corporation.
Total funds available for credit are $15 million per year.
Credits must be taken in increments of 25% (of the credit) per year for the 4 years following
Credits used cannot exceed 50% of the total tax due by the investor for that taxable year
before application of the tax credit.
To the extent this limitation requires the taxpayer to take the credit over more than 4 years,
unused credits may be carried forward no more than 15 years.
Qualifying Angel Funds:
An investment company located in Tennessee with the sole purpose of providing funding to
companies in the seed or early stages
Fund may provide up to $1 million in funding per business
Aggregate investment limit per business is $5 million
An Angel Fund must invest in companies meeting the following criteria:
o Businesses located in Tennessee
o The Fund must own less than an aggregate of 50% of the business
o Annual gross sales of less than $3 million
o Business must either: 1) be a manufacturer; 2) develop or apply advanced
technologies; 3) or bring significant permanent capital into the State
o Must be the professional, full-time activity of at least one of the principal owners
VII. Access to Capital for Entrepreneurs (ACE) Act (H.R. 578)
This legislation was introduced on January 19, 2007 by Rep. Earl Pomeroy (D-ND), a
member of the Ways and Means Committee and Rep. Donald Manzullo (R-IL), a member of
the Financial Services Committee.
The ACE Act would create a 25-percent tax credit for accredited investors and certain
partnerships, including angel investment pools if all are accredited investors, which invest
cash in a qualified small business. An angel investment pool is a group of investors who
come together to pursue common investments.
To qualify for the tax credit, an investor would have to hold onto the investment for at least
three years. The maximum amount eligible for the credit is $250,000 per investment and a
total of $500,000 per qualified individual investor.
The Access to Capital for Entrepreneurs (ACE) Act was developed to fill a gap in current
equity funding. Generally, venture capitalists invest a minimum of $6 to $7 million in
mature companies. Venture capitalists have become more risk adverse and tend to limit
their investments to certain high growth sectors of the economy, such as life sciences and
By contrast, angel investors take more risks and invest locally or regionally. However, the
maximum amount invested by angel investors typically is between $500,000 and $1 million.
Thus, there is currently a substantial gap in equity funding between angel investors and
This bill addresses the equity gap by encouraging current accredited investors to increase
equity investments in certain qualified small businesses.
According to the Center for Venture Research, 227,000 angel investors invested more than
$23 billion into new ventures in 2005, the year for which the most recent data are available,
creating 198,000 new jobs, or 4 new jobs per angel investment.
This is the first federal credit of its kind. Twenty-one states, including North Dakota,
currently offer some sort of income tax credit to encourage such private investments in early
The legislation is the result of the work of a nine person panel of experts, which included
Bruce Gjovig, director of the University of North Dakota Center for Innovation.
VIII. 2007 Investment Bill Section-by-Section
A. Title I. SBIC Program
Section 1. Simplified Maximum Leverage Limits
This provision will simplify the leverage cap rules and relax restrictions on the amount of leverage
available to SBICs that are under common control.
Section 2. Increased Investments in Women-Owned and Socially Disadvantaged
This section will establish an incentive to form funds focused on investment in minority and women
owned businesses by permitting such funds to operate with increased maximum leverage limits.
Section 3. Increased Investments in Smaller Enterprises
This section will also increase overall investments in smaller enterprises by requiring funds, as a
condition of receiving leverage, to certify that not less than 25% of the funds financings go to
Section 4. Simplified Aggregate Investment Limitations
This section will revise the current limit on the amount that can be invested in any one portfolio
company to standards that are more consistent with industry accepted portfolio risk management
B. Title II. New Markets Venture Capital Program
Section 1. Expansion of New Markets Venture Capital Program.
This section would require, the Administrator to actively engage in the activities to expand the New
Markets Venture Capital Program. This section would also require the Administrator to perform a
study on their success in expanding the NMVC program.
Section 2. Improved Nationwide Distribution
This section will require the Administrator to select at least one company from each of the SBA’s
geographic regions as part of its efforts to expand the program.
Section 3. Increased Investment In Small Manufacturers
This section will reduce the capital requirements required for NMVC companies primarily engaged
in investment in small manufacturers, making it easier for these companies to secure final approval.
Section 4. Updating Definition of Low-Income Geographic Area
This section would amend the current definition of “low-income geographic area” as it relates to
metropolitan areas to provide more conformity between the New Markets Venture Capital program
and the New Markets Tax Credit program.
The amendment will define a low-income geographic area as those in which the median household
income of a population census tract does not exceed 80 percent of the greater of the statewide
median household income or the metropolitan area median household income.
Section 5. Study on Availability of Equity Capital
This section also requires the Chief Counsel for Advocacy of the SBA to conduct a study on the
availability of equity capital in low-income urban and rural areas and report its findings to Congress
within 90 days of the study’s completion.
Section 6. Expanding Operational Assistance to Conditionally Approved
This section will permit New Markets Venture Capital Companies that have received conditional
approval from the SBA under Section 354 to receive early grant assistance up to $50,000 at the point
of initial designation. In the event that a conditionally approved NMVC company fails to win final
approval, the grant would be repaid to the SBA. If the company wins final approval, however,
amount of early grant assistance will be deducted from the total amount of operational grant
assistance the company receives.
This section further provides NMVC companies with two full years to raise private capital and
matching funds for operational assistance. Currently, these companies have up to two years under
Section 7. Streamlined Application For New Markets Venture Capital Program
This section will require the SBA to develop a set of documents that reduce the cost and burden for
New Markets Venture Capital companies applying for final approval under the program. These
documents must be created within 60 days after the enactment of the bill.
Section 8. Elimination of Matching Requirement
This section will eliminate the minimum amount of matching commitments for operational
assistance that an NMVC company must raise before receiving final approval. Currently, this
minimum is set at not less than 30 percent of the total amount of private capital or binding capital
commitments the NMVC company has raised.
Section 9. Simplified Formula for Operational Assistance Grants
This section will revise the amount of operational assistance grants a NMVC company may receive.
The new amounts will be equal to either 10 percent of the private resources the company has raised
for operational assistance, or $1 million, whichever is less.
Section 10. Authorization of Appropriations and Dedication to Small Manufacturing
This section reauthorizes appropriations to fund debenture guarantees and OA grants for fiscal years
2008, 2009, and 2010 and requires that at least a quarter of these authorized funds be used for the
purpose of entering into participation agreements and providing operational assistance to small
C. Title III. Angel Investment Program
Establishment of Angel Investment Program
This legislation will establish an Office of Angel Investment within the Investment Division of the
SBA. This office will be headed by a Director of Angel Investment, who will be responsible for
administering the Angel Finance Program and Federal Angel Network established by the bill.
As with other SBA programs, the Angel Finance Program will function as a public-private
partnership between the SBA and privately organized “angel groups.” Angel groups will consist of
ten or more accredited investors (as that term is defined under Rule 501 of Regulation D of the
Securities and Exchange Act of 1933, 17 C.F.R. Part 230 et seq.) that are licensed by the SBA
specifically for the purpose of making investments early stage domestic small business concerns. In
exchange for complying with the program’s licensing and investment requirements, angel groups will
receive up to $2 million in leverage financing from the SBA.
Leverage financing that angel groups receive must be invested in a local small business concern with
an equal or greater amount of private investment capital raised by the angel group. Leverage will be
repaid with a pro rata share of investment returns relative to the amount of leverage that angel
groups receive on their investments. As leverage is repaid, amounts collected by the SBA will be
deposited in an Angel Investment Fund at the U.S. Treasury. The Angel Investment Fund will serve
as a revolving source of leverage financing for the Angel Finance Program to operate without regard
to fiscal year limitations.
The legislation will also create Federal Angel Network within the Office of Angel Investment that
will collect and maintain information on local and regional angel investors and angel groups. This
information will include a list of names and addresses of angel groups and angel investors,
information about the types of investments each angel investor or angel group has made, and
information on other public and private resources on angel investors and angel groups. This
information will be maintained in a regularly updated searchable database available through the
SBA’s database. Additionally, information contained within the database will be readily available for
use and distribution by other angel networks and groups, thereby augmenting the exposure of the
Federal Angel Network. Angel investors and angel groups will have the option of excluding their
information from the network.
Finally, the Administrator will also carry-out a grant program to make grants to entities that develop
new or existing angel groups or to increase awareness and education about angel investing. Grant
recipients could include units of state or local governments, nonprofit organizations, or Small
Business Development Centers or Women Business Centers established under the Small Business
Act. To receive grant assistance, however, eligible entities must raise matching funds equal to half of
the grant amount, thus strengthening their commitment and amplifying the grant assistance itself.
D. Title IV. Surety Bond Program
Section 1. Study and Report
Within 180 days of enactment of this section, the Administrator shall conduct a study of the
program’s current funding structure and report its results to Congress. This study shall include:
(1) An assessment of whether the program’s current funding framework and program fees
are retarding the program’s growth;
(2) An assessment of whether surety companies and small business concerns could benefit
from an alternative funding structure;
(3) An assessment of whether permissible premium rates fore surety companies participating
in the program should be placed on parity with the rates authorized by appropriate state
insurance regulators and how such a change would affect the program under the current
Section 2. Preferred Surety Bond Program
This provision will establish explicit statutory authority for a preferred surety bond program that
would essentially mirror the preferred lender program under section 7(a) of the Small Business Act.
Under the PSB program, the Administrator shall carry out a program under which a written
agreement between the surety and the Administration delegates to the surety complete authority to
issue, monitor, and service bonds subject to guaranty from the Administration without obtaining the
prior specific approval of the Administration. The Administration may recertify PSB sureties for an
additional term not to exceed two years. Prior to recertification, the Administration shall review a
surety’s bonds, policies, and procedures for compliance with relevant rules and regulations. Bonds
made under this program shall carry a 70% guaranty.
Section 3. Denial of Liability
For bonds made or executed with the Administration’s prior approval, the Administration shall not
deny liability to a surety based upon information that was provided as part of the guaranty
Section 4. Increasing the Bond Threshold
This section will increase the maximum permissible bond amount from $2 million to $3 million.
Section 5. Fees
This section will permit the Administrator to make contributions for the purpose of reducing fees, if
and when an appropriation is made available for that purpose.
E. Title V. Venture Capital Investment
Section 1. Determining Whether Business concern is Independently Owned and
This section specifies that the SBA shall not consider venture capital investment in determining
whether or not a company is defined as a small business.
F. Title VI. Regulations
Section 1. Regulations
This section requires the SBA to promulgate revisions implementing necessary regulatory changes
within 90 days.