State House Report

South Carolina May Get More Angels

By Andy Brack
Monday, May 6, 2013

It looks like South Carolina’s going to get more angels soon — angel investors, that is.

The House and Senate this year have approved virtually identical bills that would provide a 35 percent income tax credit to home-grown investors who provide capital to support business start-ups. Typically, this “angel funding” ranges from $100,000 to $500,000 for new businesses that are more than just a idea and need a nudge in funding to make a proven product or service successful by focusing on sales, production or marketing.

“This bill will have two major impacts on South Carolina’s economy,” said Gavin M. McCulley, a Charleston investor who is bringing peers together as a group to take stakes in South Carolina startups. “First, investors are incentivized to put their capital to work in the start-up business space and second, businesses are encouraged to start their job-producing, economy-stimulating, fast-growing companies here in South Carolina.

“This effort keeps talent and capital right here in South Carolina.”

In legislative parlance, angel investors are helpful because they encourage development of “early stage, high-growth, job-creating businesses” that “expand the economy of this state by enlarging its base of wealth-creating businesses.”  In regular guy language, that means by giving tax credits to wealthier people to invest in new ventures that have some risk, more South Carolina businesses — often ignored by Silicon Valley venture capitalists and big investment — could grow beyond the concept stage into real job producers here.

The state Senate passed its version [S. 262] of the “High Growth Small Business Job Creation Act” in March by a 39-4 vote.  The House voted 96-10 on April 25 to approve its version [H. 3505 ].  Both bills now are in each chamber’s finance-related committees.  Because they’re so similar — the Senate bill has two extra reporting requirements on how many investors take the tax credits annually — it’s very likely they’ll pass after being a dream for a few years.

In 2011 when the House passed an angel investment bill that didn’t make its way through the legislative process, House Speaker Bobby Harrell noted the critical role played by entrepreneurs to expand and create jobs in the Palmetto State.

“This bill gives South Carolinians an opportunity and incentive to invest in our state’s economy,” he said, adding that the proposal was the brainchild of the late S.C. Rep. Bill Wylie of Greenville. “Adding to our state’s strong pro-business reputation, this measure will make South Carolina a more attractive destination for the type of innovative private sector investment our economy needs to grow and prosper.”

Eric Dobson, a former Charleston resident who took a shipping technology business from startup until it was sold to a larger company, now works as chief financial analyst with Angel Capital Group. It reviews angel projects and presents good ones to its new network of investors, each of whom will bet at least $10,000 each a year on different deals.

“If you think of the economy as a ‘food chain,’ the entrepreneurs are the plankton, or the root, of the food chain. They are consumed by bigger fish, who are consumed by bigger fish, and so on, ad infinitum. Angels are the nutrients in the water that give the plankton life.

“Angels fund 90 percent of startups,” he continued, referring to the 30,000 deals a years in which angels invest. “Without angels, our economy would collapse.  And, some of those startup companies go on to become Google or Facebook and other companies. This is only possible through angel investors taking calculated risks for great rewards.”

Dobson said that to encourage more recovery in the economy, the country — and South Carolina — has to accelerate the rate of business startups to create more future jobs.  Yes, some will fail.  But without entrepreneurs having capital to take the risk, no new jobs will be created.

“Angel groups simultaneously provide the accelerant for small businesses to grow and create wealth for the entrepreneurs and angels.  Angel capital is consistently one of the best performing asset classes in the market, regularly outperforming the S&P 500 by a factor of two to three times.”

Andy Brack is publisher of Statehouse Report; reach him at .(JavaScript must be enabled to view this email address). Statehouse Report also publishes a news analysis by Bill Davis.

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