A new report released today by the Kauffman Foundation finds that a permanent tax exemption on capital gains on investments in startup companies held at least five years could spur startup activity -- to the tune of $750 million in additional annual seed investments.
Says the foundation: "New companies with high growth potential -- and with high potential to create jobs -- often struggle to obtain capital to cross the so-called Valley of Death in the process from concept to prototype. With continued economic uncertainty, government funding is no longer a guaranteed solution, and private investors have become increasingly risk averse."
The idea is embodied in the Startup Act legislation recently introduced in the Senate by Sen. Jerry Moran, R-Kansas, and Sen Mark Warner, D-Va., and in a Small Business Tax Extenders Bill introduced this week by Sen. Olympia Snowe, R-Maine, and Sen. Mary Landrieu, L-La.
To be sure, tax incentives for this are controversial. A couple dozen states have offered some form of state tax credits for angel investments but some have let their programs expire and others are considering it, the Wall Street Journal recently reported. Surely budget cuts come into play, but states that are letting them expire also dispute the effectiveness of incentives, saying investors don't make high-risk investments because of tax breaks.
Kauffman believes a federal and permanent incentive would help spur innovation dollars. Here is the full report. What do you think would help encourage more badly needed funding in South Florida?