Busy Thursday

This may be one of the more group meeting packed days I have had in a while.

1. MS Society - Leadership 2010 group breakfast at 7am
2. Birmingham Venture Club meeting at lunch
3. Cuestion Tequila "Meet and Greet" at 5pm
4. Birmingham Angel Network meeting at 6pm

That is a full day for me, but it is exciting to have a lot going on.

If you are going to be at any of these, please drop by and say hello.

Letter to Senator Shelby

Senator Shelby,

I would like to express serious concerns relative to Senator Dodd's regulatory reform bill, specifically the provisions in Section 926, entitled "Authority of State Regulators Over Regulation D Offerings" (pages 816-819).

I am the Executive Director of the Birmingham Angel Network, Birmingham's only Angel Capital Association chapter, and we are working very hard to increase the availability of angel capital to high growth start-ups in Alabama. These efforts even include the widely supported idea of creating a state tax credit for qualified angel investments. Unfortunately, increasing regulation requirements and increasing the standards for qualified investors will only make that goal harder to achieve, in a time when our state and national leaders need to be doing all they can to promote the creation and growth of new businesses.

While there are certainly reforms that are necessary and should be supported, these provisions will simply impede vitally needed areas of economic growth and we would ask that they be removed from the bill.

Sincerely,
Joshua Watkins
Executive Director
Birmingham Angel Network, LLC

Instead of Dodd's overhaul, why not start with repealing GLBA

Citigroup and the other mega banks started "too big to fail" in 1999.

Don't believe it. That was when the Gramm-Leach-Bliley Act (GLBA) was passed, after decades of lobbying by some of the largest financial institutions. It repealed part of the Glass-Steagall Act of 1933, thereby opening up the market for mergers among banks, brokerage firms and insurance companies.

The Glass-Steagall Act had previously prohibited any one institution from acting as any combination of an investment bank, a commercial bank, or an insurance company and had been working fairly effectively since the great depression by segregate essential banking functions and preventing "too big to fail" or the related systemic risk.

The history on GLBA (according to Wikipedia) is pretty bad, especially given the results, and it should have been forseen:

"Prior to the Act, most financial services companies were already offering both saving and investment opportunities to their customers. On the retail/consumer side, a bank called Norwest which would later merge with Wells Fargo Bank led the charge in offering all types of financial services products in 1986. American Express attempted to own almost every field of financial business (although there was little synergy among them).

Things culminated in 1998 when Citibank, merged with Travelers Insurance creating CitiCorp, the largest and the most profitable company in the world. The merger violated the Bank Holding Company Act (BHCA), but Citibank was given a two-year forbearance that was based on an assumption that they would be able to force a change in the law. The Gramm-Leach-Bliley Act passed in November 1999, repealing the BHCA and portions of the Glass-Steagall Act, allowing banks, brokerages, and insurance companies to merge, thus making the Citigroup/Traveler Group merger legal."

So, rather than creating an even bigger mess with a "systemic overhaul," why not just start by repealing the ill conceived legislation (GLBA) that got the "too big to fail" ball rolling in the first place.

Of course that won't happen because creating huge new legislation and ramming it through under threat of dire consequences is too big of an opportunity to shift the playing field for any legislator to pass up.

Citique/Analysis of Georgia Jobs Bill of 2010 (HB 1023)

I have had several people ask about the Georgia Angel Tax Credit bill since the BBJ article, so I thought this was as good of a place as any to cover it.

Georgia HB 1023 - Jobs, Opportunity, and Business Success Act of 2010 also known as the Jobs Bill of 2010 is designed to use tax credits, cuts and incentives to create, expand and attract new businesses. The bill has several parts, namely:

1. Creation of the “Year for Georgia Entrepreneurs”: Allows Georgians the opportunity to start a new business with no state fees.

2. “Angel Investor” Tax Credit: An income tax credit of up to 50% of an investment made in small or start up businesses with 20 or fewer employees. The income tax credit would be available 2 years from the date of investment. The total “Angel Investor” tax credit pool would be limited to $10 Million per year (adjusted for inflation) and dispensed on a first come-first served basis.

3. Quarterly Credit Towards Unemployment Insurance Tax: For each eligible employee hired who is receiving State Unemployment benefits, a company will receive a $25-125 quarterly credit towards their unemployment tax.

4. $2,400 Tax Credit for the Hiring of the Most Difficult to Employ: Any Georgia company which hires a person, in a net new job, who has been eligible to receive unemployment benefits for at least 13 weeks, can receive a tax credit of $2,400 after 24 months of consecutive employment.

5. Elimination of the Net Worth Tax: The net worth or intangible tax (held over from a 1930’s law and only retained by a handful of states) that taxes wealth accumulation is eliminated.

6. A Triggered 50 Percent Reduction of the Capital Gains Tax for all Georgia Taxpayers: Georgia currently has the 15th highest Capital Gains tax in the country and the 2nd highest in the Southeast, with two neighboring states at 0%.


My Thoughts -

I like the elimination of the state fees for creation of an entity, that is a small hurdle, but can be a big deal to small businesses and I think most businesses would be better served in a liability limiting entity rather than as a sole proprietorship.

I would like to see some narrowing of the "qualifying business" definition for purposes of the angel tax credit, mainly to include some version of a related party exclusion. Otherwise, I think it is at serious risk of being somewhat wasted and used in intra-family gifting/estate planning strategies.

Also, the new jobs creation/hiring credit is probably a bit ill conceived, since I doubt many small businesses will let a $2400 tax credit (or similar stipends) drive hiring decisions.

Overall though, Alabama could well use a similar bill and it takes guts to make a proposal (any proposal) because it is some much easier to sit on the sidelines and complain. We should support those that are trying to come up with good solutions and applaud those efforts.

Startup Digest....getting Birmingham on the list

In a post on Venture Hacks today, Nivi mentioned Startup Digest (link) as a place to see what events are going on in the startup world. Being interested in staying plugged in, etc. I checked out the list and (probably not surprisingly) Atlanta is about the only southern city even on the list.

Birmingham certainly has plenty of startup related events and several startup related entities, so maybe as we grow the profile of our local community we can become more of a player in the national scene.