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Extending Kansas Angel Investment Tax Credit is a must for entrepreneurs and investors

Startup Funding and Raising Capital

Today, the Kansas House of Representatives—specifically, the Committee on Taxation chaired by Johnson County’s own Rep. Marvin Kleeb—will hold a hearing on the extension of the Kansas Angel Investment Tax Credit. This credit, which is currently scheduled to sunset in 2016, is an important tool for Kansas investors and early stage companies. Simply put, it helps more Kansas companies secure more investment.

The going isn’t easy for an early-stage business trying to get off the ground in Kansas. Let me be clear: it’s never easy and it shouldn’t be, but in Kansas, early-stage businesses and startups fight more of an uphill battle. We lack the density and connected networks of Silicon Valley or Boston, but despite that, Kansas companies have a few unique benefits—one of those is the angel investment tax credit.

Since Mid-America Angels was founded in 2006, we’re invested more than $16 million in 62 early stage deals, which have included some of the most notable early-stage exits in recent memory: Aratana Therapeutics, Rush Tracking Systems and Rhythm Engineering to name only a few. The vast majority of our investments have been in Kansas companies, and most of them have utilized angel investment tax credits.

It’s no secret that early-stage capital carries higher risk, than, say, a small-cap mutual fund. That’s why we do a lot of work during our due diligence process to ensure that MAA investors are well-informed before making their investment decisions. Angel investment tax credits are an essential tool for our organization to use in mitigating the risk of early-stage investment. The existing tax credits also make Kansas companies more attractive to investors–from Kansas or any other state. It allows angel investors to leverage their real investment in a company–and in some cases, encourages investors to tolerate a bit more risk or make a larger investment than they normally would.

In the past decade, more than 20 states have implemented programs to attract or retain investment capital by way of income tax credits. Angel tax credits, as an added incentive, help to create new jobs – according to the Center for Venture Research, on average, 4.1 new jobs are created for each angel investment that is made.

For a decade, Kansas has been a leader in the angel investment—investors have grown our state’s wealth and Kansas companies have benefitted. But the real winner has been our state’s economy—this credit has directly created jobs, better leveraged private dollars and helped startup companies secure the capital they need to accelerate into a hockey stick growth curve. To lose this tax credit would be devastating to our state’s active early-stage investment community and would jeopardize the ability of Kansas companies to raise the capital they need to grow. It’s essential that the Kansas House support Kansas startups and investors by voting to pass HB 2405 and extend the sunset of the angel investment tax credit program.

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