Calling All Would-be Angels: “Invest In America Act” Bill Could Help You Find Your Wings

Start-ups and small businesses represent the heart of the American economy and fostering this sector is integral to continued innovation and job growth in the U.S.  Access to capital however, is always a critical issue for these types of businesses and angel investors often represent the difference between a given company’s continued growth and its certain death. While the amount of angel investment has steadily increased over the past couple years, particularly with the introduction of the JOBS Act and state level Intrastate crowdfunding laws, the aggregate pool of angel investors still pales in comparison to the size of the entire U.S. population. That got me thinking, how can this pool of angel investors be increased?  That is where my proposed “Invest In America Act” Bill comes in.

In mid-2016 I wrote an article entitled “Follow The Leader: Why The U.S. Needs A Federal Tax Credit For Angel Investors,” advocating the need for a federal level tax credit for angel investors. As noted in the article, investing in small and early-stage businesses, particularly start-ups, is inherently risky. The dilemma, however, is that these are the businesses are the ones most in need of funding. So how do you incentivize investors to take on the inherent investment risks? As I concluded in the article Investment based tax incentives offer a strong, proven, solution to this problem.

I had intended the article to be a call to action to legislators but, while it gained significant traction, it did not get to the point of any tangible legislative action. Not being one to wait around I decided the easiest way to get the ball rolling would be to draft a bill myself (hey it worked for the Illinois crowdfunding law so why not again). After a few months of drafting, and some help from commenters like Georgia Quinn of Ellenoff, Grossman & Schole LLP, and members of Crowdfund Intermediary Regulatory Advocates (CFIRA), the attached proposed “Invest In America Act” was created.

What Does the Proposed Bill Do?

The proposed “Invest In America Act” is a two-part Bill designed to widen the pool of investors for “qualified small business entities” (as discussed below, a “QSBE”). Specifically, the Bill intends to both reduce the investment risk of smaller angel investors and to incentivize institutional and larger angel investors to open up the bigger, traditionally private, deals to the general public.

To accomplish the first part, the proposed Bill would create an immediate Federal tax credit for investors who make an “equity investment” (as discussed below) in a QSBE in an offering that is made open to both accredited and non-accredited investors (i.e. a Title III or Intrastate offering). The amount of the credit would be equal to 50% of the total amount invested by the respective taxpayer. The proposed Bill would also allow for a full deduction of the investment amount in the event the investment became worthless (as determined pursuant to IRC Section 165) during the first three years of ownership. The intent of these credits is to significantly reduce the downside risk to smaller investors who support QSBEs. As noted above, investing in these types of business is inherently risky, particularly for smaller investors, and an investment based tax credits like these will actually make an investment in early stage companies significantly more attractive to risk-adverse investors (for more detail on this concept, see the above-mentioned article).

The second part of the Bill is actually something which has not been seen before. While the JOBS Act and state level Intrastate offering laws have significantly helped to democratize private investment, participation in the larger, more potentially lucrative deals, still remains limited exclusively to larger individual and intuitional investors, PE and VC firms. To incentivize these larger investors to open up a portion of these types of deals to smaller investors, the proposed Bill would allow such larger investors to take an immediate Federal tax credit equal to 15% of their respective investment amount so long as a related Title III or Intrastate equity offering is also conducted. Now there is nothing in the proposed Bill that would require both the larger/institutional level offering and the Title III/Intrastate offering to have the same terms (other than with respect to access to financial information). As a result, the larger investors would be able to conduct basically the same types of offerings they conduct today and still qualify for the credit as long as they opened up a piece to smaller investors.

The practicality of the above credit might be easier seen in an example. Let’s assume a QSBE (e.g. the next Airbnb or Uber) is receiving $5 Million in financing from a VC firm in exchange for a controlling interest, preferred distribution rights, etc. Under the proposed Bill, the VC firm could conduct the same offering, and would be eligible to receive a 15% tax credit (= to $750k), so long as the QSBE also conducted a Title III or Intrastate equity offering allowing smaller investors to get involved. The equity sold as part of such side offering could carry a lesser profit percentage, be completely non-voting, etc. so as not to interfere with the interests of the investing VC fir. The result, as you can see in this example, is that under the proposed Bill the VC firm would be able to make the same investment in the QSBE they would make today except now they would be eligible to receive a tax credit in connection with that investment AND smaller investors would actually be given a chance to participate. This is a win-win all the way around.

Now let’s be clear, the above-described credits are subject to certain limitations and additional provisions as discussed below. That being said, the proposed Bill was drafted to be as flexible and as possible and to respect the realities of current large scale investors.

What Are the Basics of the Bill?

The proposed Bill can be boiled down to the following:

It should be noted that the above-mentioned credits would be subject to certain investor level and aggregate cap amounts as well as certain other qualifying provisions as detailed out below.

If It Is So Good, Why Hasn’t It A Been Done Before?

That’s just it, angel tax credits are not a new thing at all. While the proposed Bill is unique in its application of the angel tax credits, as noted in the article multiple states currently have some form of angel tax credit program in place. Not to mention places like the UK who allow for national level credits under their Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) programs.  This isn’t even the first time a proposed Federal angel tax credit bill has been proposed. In my research, I found three previous bills (HR 5198 (2006), SB 256 (2011) and HR 4931 (2014)) though all of them were limited to providing tax credits only to high net worth, accredited, investor.

In important thing to note, as also discussed in the article, is that there is documented evidence that angel tax credit incentives work in encouraging significant amounts of investments to be made in small and early stage business. This is why I believe the proposed Bill, if passed, would significantly increase investment in these types of businesses. Put simply, this Bill has the potential to incentivize more angle investors to support QSBEs then ever before, not to mention opening up potentially lucrative private deals to the general public. If that happens, there will be more angel investors, particularly successful ones, to help fuel US small business and propel our economy forward.

Where Do We Go From Here?

I have done the heavy lifting in drafting the Bill but that is as far as I can take it without additional legislative support. With the aid of some of my colleagues and organizations like CFIRA I fully intend to lobby to move this Bill forward but I implore others to do the same. Help me get this proposed Bill to the right people who can make it a reality.

On a final note, I welcome all comments to the proposed Bill. My intent is not to further a personal agenda but rather to create a tax credit program that can truly work to the benefit of both small businesses and small business investors, both accredited and non-accredited. If your comments can help make the Bill better than, by all means, please send them my way to Anthony at

The Nitty-Gritty is Below

For those that are interested, here are some of the specific provisions of the proposed Bill:


Anthony Zeoli is a Senior Contributor for Crowdfund Insider.  He is a Partner at the law firm of Freeborn in the Corporate Practice Group. He is an experienced transactional attorney with a national practice specializing in the areas of securities, commercial finance, real estate and general corporate law. Anthony recently drafted the bill to allow for an intrastate crowdfunding exemption in Illinois.

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