There are a number of bills in Congress that could affect entrepreneurs and investors. As federal policymakers on Capitol Hill work to reduce the nation’s deficit and unemployment rate, they are simultaneously introducing legislation intended to drive job and GDP growth. Although not likely to pass exactly as outlined, the bills include funding opportunities that support entrepreneurship and incentives that promote research and investment in young, innovative companies.
Here are some of the proposed legislation that could impact entrepreneurs and investors:
- Small Business Innovation Research: As I mentioned in an earlier blog post, the Small Business Innovation Research (SBIR) program fills a gap in startup financing by offering grants to technology ventures in the product development stage. To date, $16 billion in SBIR grants have been awarded by federal government agencies to small, technology-based companies. The SBIR program officially expired in 2008 and since then, Congress has passed 12 continuing resolutions to keep the program running a few months at a time. In May President Obama signed an extension through September 30, 2011 just hours before it was due to expire. This bill (H.R. 1425) would reauthorize the SBIR program through 2014 and is sitting on the House floor awaiting debate.
- Angel Investor Tax Credit: States across the nation have instituted tax credits for investments in startup companies to incentivize investors to put money into high growth companies. Ohio, for instance, allows investors in small, technology-oriented companies to reduce their state taxes by 25% the amount of their investments. Although the U.S. federal tax code provides for a 50% to 75% reduction in capital gains taxes for investments in small businesses, the break is rarely used because of its impractical requirements. For instance, investors looking to take advantage of this break must invest in a C-corporation even though, according to a Kauffman Foundation survey, only 8% are registered as C-corporations. To expand on the efforts of states like Ohio and stimulate job growth nationally, the House is considering the Innovative Technologies Investment Incentive Act of 2011 (H.R. 1732), introduced on May 4th. This bill would give investors in SBIR-awarded companies a 25% tax credit.
- R&D Tax Credit: The Research and Experimentation tax credit incentivizes private firms, including young technology companies, to make investments in R&D activities in the United States to keep a pipeline of innovative products entering the marketplace. The credit, which has been in existence since 1981, is not permanent and has been extended on a temporary basis 14 times. In December 2010 President Obama signed into law a retroactive extension of the credit through the end of this year. The Research and Development Tax Credit Extension Act of 2011 (H.R. 1693) was introduced in the House in May. This bill would make the R&D tax credits a permanent part of the Internal Revenue Code of 1986.
Traversing the “valley of death” between proof of concept and market entry is not an easy feat for cash-strapped entrepreneurs. Should the angel investor tax credit, R&D tax credit, and/or SBIR legislation pass, entrepreneurs could have greater access to capital to enable them to prove the technical merit of their technologies and evaluate their commercialization potential.
Leah’s primary focus as JumpStart’s Market Analyst is developing a deep understanding of the key challenges and opportunities facing entrepreneurs and early-stage companies. Using her experience leading research projects and framing problems to identify creative solutions, Leah works to build stakeholder relationships, ensure the growth and success of client and portfolio companies, and drive organizational strategies. Additionally, Leah brings her insights to life through communications and advocates for and connects entrepreneurs to additional capital and service resources beyond those provided by JumpStart.