I was reading Sanjay Parekh’s blog yesterday, and it equal parts inspired and scared me. The scary part first: if a guy like Sanjay can’t get down with Georgia’s Angel Tax Credit bill, what’s really going on here (short of him just being contrarian)? I’ll leave the mathematical debates to Sanjay and Ben Dyer as I’m convinced the numbers could be twisted to tell whatever story you want. Where I’ll absolutely agree is in questioning the funding sources. If the theory of an Angel Tax Credit that pays dividends to rich people in 2013 takes resources away from someone in need today, that’s disgusting. Even if it’s only $52…
On the other hand, you’ve got Knox Massey who’s been part of a team working tirelessly for 5+ years who believe this tax credit will be a tipping point to get more investment in the state of Georgia. So the logical question is: Who you gonna trust?
I’ll take the latter first: will the legislation create more funding events? Absolutely not. Great startup ideas and confident angels will make deals happen. Put yourself in an angel investor’s shoes: would you stroke a $150,000 check and invest your time and personal network in a management team based on a tax event three years in the future? Hell no. Angel investing is an art – it’s a state of mind. There’s no Smith Barney wealth management guy who’s going to endorse risk like that. In fact, if you’re negotiating with potential investors and they seem overly fixated on the Angel Tax credit, I offer this advice: RUN! You couldn’t have a less strategic partner for what could be the most important thing you’ll create in your life (with the clear exception of your children). What it will do is add a point or so more profit to the angel investor who took the risk – a nice bonus, but not exactly key decision criteria.
As to Sanjay’s concern about returns, I’d drop that at the feet of entrepreneurs – ourselves included. Why can’t an angel-funded business turn a significant return in three years? The answer is right in front of us all: mediocre startups. This town’s bastardization of the ‘cluster’ theory continues to dominate thinking, which creates a litany of me-too, small-ball companies. The ideas don’t excite anyone and the exit potential doesn’t inspire confidence there will be a large enough multiplier. Ask yourself the tough question: is your startup swinging for the fences? How the hell could anyone expect a $50,000 tax credit to solve that?
Let me quote the caustic words of Grayson Daughters: “Honestly, I'd throw money at the poorest of the poor first ... given some of the ‘entrepreneur’ types I've met over the years in Atlanta. I wouldn't trust some of 'em to walk my dog down the street, let alone do not-so-great things with someone else's money.” The truth stings.
So take a good long look in the mirror. Is your startup making the moves necessary to draw serious investors – regardless of a tax credit? And if you’re an angel investor, are you really doing deals or are you just showing up for the food? You do know your title requires you to put seed money into startups, right?
On it’s best day, the Angel Tax Credit is step one on a path to moving Georgia toward equal footing with its neighbors. And it certainly creates a positive perception of Georgia as a good place to start tech businesses, which is precisely why California and Massachusetts don’t need them – they’re already king and queen of the prom. At the same time, let’s not kid ourselves into viewing it as some magical elixir. I echo Paul Freet’s thought that the job is only half done – unless of course we all band together to develop true business rationale to invest in Georgia’s tech startups. If we can’t figure out how to do that as a community, I’m squarely in favor of Darwinism over continued government intervention.