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State Strategies to Promote Angel Investment for Economic Growth

Governors are increasingly interested in entrepreneurship because of its key role in driving
business innovation. While entrepreneurs face several common challenges, including developing
business acumen and making connections with experts and mentors, often their greatest challenge
is raising capital.

Entrepreneurs’ emerging technologies are frequently viewed as too risky for
banks, private equity firms and venture capitalists, yet many fledgling companies require more
investment to grow than can be raised from friends and family. Angel investors are increasingly
stepping in to fill this gap.

Angel investors are wealthy individuals with business or technology backgrounds who provide
entrepreneurs with capital, connections, and guidance. They provide early-stage financing in a
space once occupied by venture capitalists, who now invest primarily in larger deals and more
mature companies. Individual angels invest between $5,000 and $100,000 in local and regional
ventures, primarily in high-technology sectors, giving their investments local impact. In the past
decade, many angel investors have formed and joined groups because investing through groups
offers several advantages, most notably a large and more diverse portfolio, access to expertise,
and higher deal flow.

States increasingly recognize the value of angel investments and are adopting policies to promote
them. Some have created statewide networks to assist the formation of angel groups, link angel
groups to share best practices, and help groups invest together in companies that need more
funding than a single group can offer.

Governors have several options to encourage the formation
of angel groups to expand early-stage investment:

• Promote seminars on private equity investment for current and potential angel investors;

• Assist entrepreneurs by connecting them with existing entrepreneurship education and
services;

• Facilitate the formation of statewide angel group networks to organize and empower local
leadership and build investor knowledge;

• Ensure that angel investors are well-represented on state economic development advisory
boards, along with entrepreneurs, universities, and other industry representatives; and

• Identify and collect metrics to monitor the impact on policies to encourage angel
investment.

Many states have also implemented financial incentives such as tax credits, conditional loans, or
matching grants for angel investment. These policies can be controversial and their impact has
not been rigorously evaluated; even angels are in disagreement as to the economic growth
benefits of tax credits. However, if tax credits are to be implemented, there are several principles
that states can incorporate from other states’ experiences. Additional monitoring and evaluation
will be needed in the field of angel investment to better determine the effectiveness of financial
tools.

Full Report: http://www.nga.org/Files/pdf/0802ANGELINVESTMENT.PDF

(Many thanks to the National Association of Seed and Venture Funds http://www.nasvf.org for sending this article. George Lipper produces an excellent newsletter http://www.nasvf.org/web/netnews.nsf/lookup/1 Russ)

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Montana RFP Issued for Consultant Services for Angel Network Training and Development http://matr.net/article-27700.html

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MoreLIP – The Ascendancy of Angels

By:
George Lipper
NASVF
Chicago, IL

The National Governor’s Association’s Best Practices report on state angel-group investment programs and incentives is a welcome contribution to the limited information about who is doing what in this relatively recent but important function of providing capital to start-up and very early stage companies. Coming just a few months after publication of the Wiltbank study on investment returns in angel groups, it help form a valuable baseline for tracking and measuring both the who and what of the growth of angel investment groups. We heartily applaud both! But….

http://www.nasvf.org/web/allpress.nsf/pages/17478

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