If you watched any of the recent news coverage of the S.C. GOP Presidential Primary, or caught any of nationally televised debates from Iowa or New Hampshire, or have listened to any of President Obama’s public campaign speeches, you probably have reached the conclusion that the two most important issues on voters’ minds remain jobs and the economy. These two issues will also be the focal point on a state level this November when each and every one of the 170 members of the South Carolina General Assembly face re-election.
As most South Carolinians have noticed, Governor Haley has been highly visible in the past few months joining the S.C. Department of Commerce with a number of huge announcements regarding job creation across the state – from large companies opening facilities in the Palmetto State to major expansions of large existing companies. While these announcements are extremely positive and demonstrate that our state’s economy is moving to somewhat of a recovery, we still have a long way to go. Therefore, it is imperative that our elected officials continue to look for more opportunities to improve our state’s business conditions, as well as help equip the private sector with more tools to create jobs.
Our state legislators will have opportunities to help improve business conditions this year, but some of the decisions may be difficult and will require some courage, especially during an election year. Issues up for debate that impact our state’s business climate include reform of the S.C. Department of Transportation, education funding, regulatory reform, reform of the state retirement system, and government restructuring.
The General Assembly, particularly the SC Senate has an opportunity to specifically help start-up small businesses by passing H.3779, also known as the Bill Wylie Entrepreneurship Act. Introduced last year by Rep. Dwight Loftis (Greenville) and Rep. Joan Brady (Richland), it easily passed in the S.C. House by a 78-18 vote.
Now, the legislation rests in the Senate, and Senators, like House members, have a unique opportunity to help home-grown small businesses thrive in a way that allows the market, not government, to pick winners and losers. This is an important point, given a political environment rife with “tea parties” and Occupy protesters and an increased focus on responsible spending. As a result, the perception, by some legislators and activists, is that government incentives are bad and often unnecessary. They argue that the free market should always dictate which companies succeed and which companies ultimately fail.
Regardless of those differing philosophical beliefs about incentives, an angel investment credit program proves to be quite different and unique from the typical incentive, as we may know them. Instead, the foundation of angel credits is the means to help entrepreneurs attract local capital that otherwise stays on the sidelines or is being invested in other states. Investors make their own investment decisions, not government agencies or bureaucrats.
An angel investment credit program is nothing more than a tool that will allow the private sector to flourish. Angel investors are private individuals who invest their own wealth in start-up ventures. When these individuals invest in qualified start-up companies in states with angel investment tax credit programs, they receive a state income tax credit from that state for a percentage of their investment. As a result, they are obviously incentivized to invest in start-up companies in that state. With no current angel incentives in SC, potential investors in our state simply don’t get engaged and don’t search for investment opportunities within our own borders.
Therefore, it is time for our state to catch up with the competition. Thirty states are far ahead of South Carolina on this front, having already implemented or currently pursuing angel investment tax credit programs. More troubling, our neighbors North Carolina and Georgia now have programs in place, putting South Carolina entrepreneurs at a competitive disadvantage. Since North Carolina implemented an angel investment tax credit program, it has created an average of 650 jobs per year with average wages of $59,000 – using a tool that we don’t currently have.
With a population of over 100,000 eligible investors who could provide angel capital, less than 1% of accredited investors invest in start-up companies, according to the Upstate Carolina Angel Network (UCAN). If only 1% of eligible South Carolina investors allocated just 5% of their investible assets to angel investing, that would represent over $57 million for South Carolina’s start-up companies.
When President Obama recently referred to small businesses as “the backbone of our economy and the cornerstones of our nation’s promise,” we doubt that any elected official, any party, or any citizen would quibble with that notion. We, as a state, have an opportunity this year to grow high-impact start-ups and bolster that backbone of our economy. Angel credits would not only generate healthy returns on investment, but support a highly competitive entrepreneurial ecosystem in SC, in turn, leading to more jobs and stronger economic growth.
For more information about this issue, please contact Mark Cothran or Elizabeth Edwards of the Upstate Chamber Coalition at mcothran@greenvillechamber.org or eedwards@greenvillechamber.org.