"I donâ€™t know what kind of impact it may have, but I do know that these investors take losses due to the riskiness of the venture."
By Rhonda Miller PBN Staff Writer
Rep. Linda Finn, D-Middletown and Portsmouth, was elected to the Rhode Island General Assembly in 2012 and is a member of the House Small Business Committee.
She is a member of the Newport County Chamber of Commerce, the Rhode Island Nursery and Landscape Association and Greenwimmen. She is president of the board of Baby Steps and has been a board member for Lucyâ€™s Hearth Community Housing Development Corp.
Finn has a bachelorâ€™s degree in marketing from Boston College.
PBN: Youâ€™ve introduced legislation to encourage angel investors to put their money into Rhode Island businesses. What triggered your interest in that subject and your decision to introduce House Bill 7812, titled Tax Incentives for Investments in Small Business?
FINN: One of the basics needs of a new business is access to capital. We have some creative, innovative entrepreneurs here, but even the best idea needs financing up front to get it off the ground. I have seen how BetaSpring helps nurture ideas into a business, but new startups generally canâ€™t go to a traditional bank for financing. Thatâ€™s where angel investors come into play. They take big risks in backing new ventures. I asked around and was told we have a law on the books, but it wasnâ€™t being used.
PBN: Under current law, investors can get tax benefits for investing in startups, but only if they are part of certified venture capital partnerships consisting of three or more partners. What tax benefit does your proposed legislation provide for individuals?
FINN: The legislation allows certified individual investors to make the investment. Most of these types of investors are investing their own money. Theyâ€™re not part of a group or syndicate.
PBN: Your proposed legislation, HB 7812, â€śâ€¦ expands investors eligible for tax exemptions by adding a certified angel investor such banks, employee benefit plans, charitable organizations and individuals which invest in small business by adding capital venture funds, with conditions.â€ť How does your bill update the requirements for investors?
FINN: The original bill had been written in the 80â€™s, we just needed to update the amounts for inflation, so theyâ€™re in line with current investor requirement. Some parts are the same. You still need to have an income of $200,000 for two years to be an accredited investor. One change is that income for married filings must be $300,000. You still need to have a net worth of $1 million, excluding your personal residence. Also, the regulating body in the 1980s was the National Association of Securities Dealers and now it is the Financial Industry Regulatory Authority, so thatâ€™s just aligning the new language.
PBN: Whatâ€™s the status of your proposed legislation on angel investors at this point? Do you see that has the possibility of being passed during the current legislative session?
FINN: As of right now, I am waiting to get a hearing date in the House Finance committee. Sen. Ryan Pearson introduced the companion legislation, Senate Bill 2795, which was referred to the Senate Finance Committee. We donâ€™t have a date yet for a Senate hearing.
PBN: Rhode Island continues to struggle to attract new business, which is so needed to boost the sluggish economy. If passed, do you see your legislation having much impact on new business in the state?
FINN: I donâ€™t know what kind of impact it may have, but I do know that these investors take losses due to the riskiness of the venture. If an investor gets a good business off the ground and they can get a benefit by not being taxed on the gains, it seems like a good thing. Maybe they will have that much more to re-invest in another business. Currently 78 percent of small businesses are considered to be non-employee businesses and if we can encourage them to add even one employee, we are doubling the number of employed. Since 1990, big business has eliminated 4 million jobs, while small business has added 8 million. It is common knowledge that if a business gets started in a state, it tends to stay, so itâ€™s important to nurture and grow these types of enterprises. If we can make tax incentives more attractive to angel investors, it could have a positive impact on the up-and-coming sectors that are the brightest spots on our stateâ€™s economic horizon.