The measure approved unanimously by a Senate Finance panel would allow so-called “angel investors” to claim up to 35 percent of their investment as a credit on their state income taxes. Each investor could claim credits of up to $100,000 a year, and recoup the amount over 10 years. The bill caps the state’s revenue loss at $5 million annually.
Supporters say the bill encourages the wealthy to make investments into businesses that are too risky for banks and venture capital firms but could become job creation factories with some needed start-up cash.
Nearly two dozen states already give such tax credits, including neighboring Georgia and North Carolina.
“Angel investors,” defined by the federal Securities and Exchange Commission, apply to investors with a net worth of at least $1 million, a single person with an annual income of $200,000, or a couple making $300,000 yearly.
Their personal infusion of cash bridges the gap between entrepreneurs’ limited funds and investment firms, said Matt Dunbar, the managing director of the Upstate Carolina Angel Network in Greenville, which consists of 50 individual investors.
About half of those business deals will fail, but the successful ones will spur high-skilled, high-paying jobs in the state, he said. The hope is that those jobs will more than offset the tax credits. Dunbar estimates that fewer than 100 investors belong to networks like his in the state.
Steve Johnson, the CEO of CreatiVasc Medical in Greenville, said that without angel investors, his company wouldn’t exist. The business began five years ago with a local vascular surgeon’s idea for a new implantable valve system for dialysis patients. More than $3 million from 32 angel investors allowed for creation of a prototype, testing and, last week, recognition by the U.S. Food and Drug Administration as an innovative medical device for kidney failure patients.
“Without angel investors, we’d be typical of a company with ideas but no way of moving forward,” Johnson said.
The investors in that project eventually formed the Upstate Carolina Angel Network. Dunbar said the group gets about 200 applications yearly from entrepreneurs but only invests in a handful of projects.
Senators needed no convincing, unanimously approving the bill before those who came to advocate for it had a chance to testify.
It is backed by various chambers of commerce and economic development groups around the state.
“The state of South Carolina has performed well in 2012 in recruiting new, larger employers, but we must also remain diligent in assisting the entrepreneurial start-ups that serve as the backbone of our economy,” read a joint statement signed Tuesday by state Chamber of Commerce president Otis Rawl and four other business leaders, who called the bill “critical to creating jobs and growing our economy.”
The House passed the bill 78-18 last April. The House GOP Caucus made it a priority item last year and named it after the late Rep. Bill Wylie. Lawmakers said the Simpsonville Republican was working on it when he died of a heart attack in September 2010.
The subcommittee also approved tax credits for solar panel installations.