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Updated: July 15, 2019 FOCUS: Banking & Finance

CT angel investors get a boost from state budget

Image | PixaBay
Photo | HBJ File Farmington-based Cytoveris has raised an additional $3.7 million. Cytoveris leaders (from left to right): Michael Sapack, vice president of engineering; Patrick Curry, chief operating officer/vice president of finance; Alan Kersey, president and CEO.
Photo | Contributed Mike Cocuzza, chief technology officer and president, of Enviro Power.
Thirty-two Connecticut companies received money from an angel investor so far this year, according to Connecticut Innovations. Among them are New Haven’s The Feel Good Lab.
By Matt Pilon
Defining terms  Connecticut law defines an angel investor as an accredited investor or network of accredited investors who review new or proposed businesses for potential investment.
More Information

Connecticut lawmakers have sent a confident message to the state’s startup ecosystem, according to some of the speculators who help fund it.

Angel investors are cheering the five-year extension of a tax credit they say makes it more attractive for them to make early stage bets on area startup companies, in turn giving those emerging firms a better shot of growing here.

Tucked into the state budget that Gov. Ned Lamont signed late last month is the third extension of the angel investor tax credit program, which lawmakers created in 2010.

Notably, it’s the longest extension in the program’s history (previously it was renewed for only two or three years), and it raises the annual cap on the credits issued from $3 million to $5 million, the largest threshold since 2014.

“What’s really great about that is it shows a commitment to the startup community,” said Mary Anne Rooke, president of the Connecticut Angel Investor Forum, which has approximately 45 accredited-investor members, mostly Connecticut residents. The forum receives about 300 funding applications annually and chooses a handful of startups to pitch its members at monthly meetings.

The tax credit provides Connecticut a competitive edge, Rooke said. It helps grow the number of angel investors who are active locally, and also helps attract outside angel investment, giving local startups a wider funding base.

“Without this tax credit, it’s hard to break into other angel money,” she said. “It helps us build their businesses and the ecosystem.”

Just over half of U.S. states have something similar to an angel investor tax credit, according to the U.S. Angel Capital Association.

Another perceived benefit of the longer extension period is it gives more certainty to investors and companies. It might even make the difference between a company moving to the state or not, Rooke said.

Craig Mullet, a Guilford resident who is also a board member of the angel forum, told lawmakers in March that it’s a small investment of public dollars that makes a real difference for startups’ ability to raise money.

“The tax credit’s proportionally small potential … cost has a disproportionate impact in helping early stage Connecticut companies launch and grow,” Mullett wrote. “I have presented on angel investing ecosystems around the world and have pointed to the tax credit as a way that Connecticut encourages angels to back local startups.”

HBJ PHOTO | Steve Laschever
Matt McCooe, CEO of Connecticut Innovations.

Extending the tax credit for a longer period of time could open up the investment floodgates to some extent, said Matt McCooe, CEO of Connecticut Innovations (CI), the quasi-public state entity that administers the angel tax credit program.

CI data show that more than 200 companies have received qualified angel investments since the program was created, with $18.9 million in tax credits issued over that period.

The credit amounts to 25 percent of the cash investment made by an accredited investor in eligible in-state companies, with eligible investments ranging between $25,000 and $250,000 per investor.

Companies must pre-qualify through CI. As of press time, there were 74 companies eligible for the credits.

Growing appeal

The state’s recent extension and more generous funding of its angel investor tax credit could lead to greater investment activity in the years ahead, experts say.

But those changes are also the latest in a chain of several recent developments that have made the tax credit program more attractive, and increased competition for the available credits.

Tweaks to the law over the past few years have made it possible for investors (like those who live outside Connecticut) to sell or assign to in-state residents the credits they earn from investing in Connecticut-based startups.

Lawmakers also eased qualification rules making more companies eligible for investment.

The changes appear to have made a difference, as investment totals ramped up this year, meeting the annual cap for the first time ever (the cap used to be higher, however), according to CI.

In addition, the number of companies receiving qualified angel investments this year, 32, is the highest its been since 2014, which was the last year the cap was set at $6 million.

“There is a demand, and I think part of that is there are a lot of new startups in Connecticut,” Rooke said.

Defining terms

Connecticut law defines an angel investor as an accredited investor or network of accredited investors who review new or proposed businesses for potential investment.

The U.S. Securities & Exchange Commission defines accredited investor as anyone who:

• Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, or;

• Has a net worth of more than $1 million, either alone or together with a spouse (excluding the value of a primary residence).

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