The Build Back Better Act (BBBA) and the proposed amendment to QSBS are threatening the current way small businesses are operating today, and those who invest in these businesses are rightfully concerned. Among these stakeholders are angel investors who fund a large percentage of small businesses through collective angel fund entities. Angel investors are now at risk of having their QSBS tax exemptions cut in half (from 100% to 50%), and if the proposed amendments are passed, they might not pursue investing the way they have in the past.
The Impacts of Angels
In a story shared by members of our coalition, one particular angel investor shared how his Angel fund has invested in more than 100 Early Stage companies, raising $100,000 at a time from individual investors. The diversification of these investments are broad in scope. Among them included a company providing a radical new approach to curing Alzheimers which is supported by the National Institute of Health. Another invested company found a way to create fuel efficiencies and reduce operation cost through a continuous air pumping technology for automobile tires. The fund has also invested in a next generation supersonic and carbon neutral aircraft company, which will run its fleet on sustainable aviation fuel. The innovation and research these companies have produced are significant and have the ability to impact how these businesses operate in the future. Angel investors know first-hand that majority of these companies would have not gotten off the ground without the help of capital pulled together by angel funds.
Early Stage investors acknowledge the obvious value in looking to invest elsewhere. However, he goes on to say the reason the Early Stage investors invest at this level is because they care about the causes they support, from health care to climate change.
Risk vs. Reward
Angel investors also know the risks they are taking, and can justify the risk knowing QSBS was created to help incentivize their investment with tax benefits. An early stage investor who had spent over two decades working for a well-known multi-billion dollar company. Also, serving as CEO of another multi-billion dollar company, shared insights with us that big businesses are “lousy investors in Early Stage companies.” These types of investments are critical in supporting the high risk innovations that have the impact to change the future. QSBS has proven to be a successful program, and early stage investors believe it should remain.
We Want to Hear From You
If you are concerned about how the BBBA may impact your company’s eligibility for the 100% QSBS exclusion or you are an angel investor with your own story, we want to hear from you. Join us as we unite our voices to speak out against these proposed amendments.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.