Angel Tax Credit

Tennessee Angel Tax Credit Why ATC? Launch Tennessee Capital Formation multi-pronged approach Connecting companies to investors across the state, region, and nation Educating companies and investors through EC’s and TENN program INCITE fund investment matching Direct incentives to encourage investment The Angel Tax Credit Incentive Program is the Most Recent Initiative Simple and direct approach to encourage angel investment Similar programs successful in other states Goals Fill gap in early stage funding, the most critical piece of capital puzzle Bring new angel investors off sidelines Encourage continued positive momentum with existing angel investors

How Will the Tax Credits Work? Tennessee Angel Tax Credit How Will the Tax Credits Work? Individual Angel investor invests in qualifying company: Three basic requirements: Company (details on next slide) TN nexus, early stage, high growth potential Investment Equity: includes common, preferred, convertible debt Minimum investment = $15,000 Cannot exceed 40% of company’s capital at time of investment Investor must be accredited per SEC rules

How Will the Tax Credits Work? Tennessee Angel Tax Credit How Will the Tax Credits Work? Angel investors receives credit versus Hall income tax 33% credit of total investment (50% for companies in Tier 4 county) Max credit for investor = $50,000 / year Unused credits can be carried over for up to 5 years

Company Qualification Tennessee Angel Tax Credit Company Qualification Early Stage Less than 5 years in business Less than $3 million in revenue in previous year 50 or fewer full-time employees Tennessee nexus 60% of full-time employees perform majority of their work in TN Meet any 1 of 3 tests: Qualify as having high-growth and institutional investment potential Company has received SBIR/STTR funding Commercializing tech developed at TN-based research institution

Company Qualification Tennessee Angel Tax Credit Company Qualification Industry Restrictions Cannot be a professional services firm or “primarily” engaged in certain industries: Construction, leisure, hospitality, retail, real estate, insurance, banking, lobbying, alcohol, gambling However, technology companies leveraging disruptive technology and innovating in these industries are qualified For example: A fintech company would qualify, a bank would not. A company 3D printing construction materials would qualify, a residential or commercial construction company would not. Property management software for hotels would qualify, a hotel would not.

Logistics and Applications Tennessee Angel Tax Credit Logistics and Applications Start date – investments made beginning Jan 1, 2017 Forms and Information on Launch website by November 15th, 2016 Processing will start Jan 1st Company Application Can be filed prior to investment for pre-certification Must be filed within 60 days of investment

Logistics and Applications Tennessee Angel Tax Credit Logistics and Applications Investor Application Must be an accredited investor defined by SEC rules Must be filed within 60 days of investment Maximum credits allocated: $3M in 2017, $4M in 2018, $5M for 2019 and beyond Credits allocated on first-come, first-served basis Investment put in queue once BOTH applications are complete 

Tennessee Angel Tax Credit Examples $60,000 investment in qualifying company Investor receives $20,000 (33%) tax credit vs Hall income tax If tax liability is less than $20,000, excess carried forward up to 5 years Investor can receive remaining $30,000 credits for other investments in that same year $60,000 investment in qualifying company (in Tier 4 county) Investor receives $30,000 (50%) tax credit vs Hall income tax If tax liability is less than $30,000, excess carried forward up to 5 years $200,000 investment made in qualifying company Investor receives maximum $50,000 tax credit vs Hall income tax 10 angels each invest $90,000 in a single qualifying company Each investor receives $30,000 tax credit vs Hall income tax No limit on amount of qualifying investments in a qualified company

Tennessee Angel Tax Credit Summary Generous program It’s good for investors – reduces risk and increases upside return It’s good for companies – encourages early stage capital formation where it is most needed Get started now looking for investment opportunities If you’re new to angel investing, consider connecting with a local/regional angel group Pre-qualified companies will be listed on the LaunchTN website

John Lanahan - John@LaunchTN.org Tennessee Angel Tax Credit Questions? Contact Information: LaunchTN.org John Lanahan - John@LaunchTN.org