Social Security Payroll Tax Holiday 2011

For 2011 only, there is a minor payroll tax holiday, where the employee half of Social Security tax will be paid out of the U.S. federal government's general fund, instead of deducted from employees' paychecks. This is part of the overall tax compromise bill, which Congress passed, extending the Bush tax cuts for two years, as well as adding this tax cut.

Employees will pay 4.2% of their wage earnings up to the $106,800 cap, instead of the normal 6.2% rate. Employers still pay their full half (6.2%). The self-employed, who normally pay both halves of the Social Security tax through the self-employment tax, will pay a combined rate of 10.4% (the employer's 6.2%, plus the employee's 4.2% rates).

To a minor extent, this limited payroll tax holiday - which is designed to spur consumer spending - will ameliorate some of the benefits of S corporation payroll tax savings.

AngelPool - First Deal Syndication Meeting Recap

We had the first of, hopefully, many regional web conferences among the southeastern ACA (Angel Capital Association) chapters as a part of AngelPool last week. Included on the meeting were representatives from:

460 Angels, Blacksburg VA
Active Angel Investors, Vienna VA
Angel Capital Group, Hendersonville TN
AngelLounge, Atlanta GA
Birmingham Angel Network, Birm. AL
Central Texas Angel Network, Austin TX
CEO Ventures, Atlanta GA
Charleston Angel Partners, Charleston SC
Concho Valley Angel Network, San Angelo TX
Global Angel Investor Network, Savannah GA
Go Beyond Network, Naples FL
Gulf Coast Venture Forum, Naples FL
Houston Angel Network, Houston TX
Huntsville Angel Network, Huntsville AL
Inception Micro Angel Fund, Winston-Salem NC
InvestIn Forum of Angel Investors, Dallas TX
Jefferson Corner Group, Charlottesville VA
Louisiana Angel Network, Baton Rouge LA
Nashville Capital Network, Nashville TN
New Dominion Angels, Warrenton VA
New World Angels, Boca Raton FL
North Texas Angel Network, Fort Worth TX
Piedmont Angel Network, Greensboro NC
South Coast Angel Fund, New Orleans LA
South Texas Angel Network, San Antonio TX
Springboard Capital, Jacksonville FL
Upstate Carolina Angel Network, Greenville SC
Virginia Active Angel Network, Charlottesville VA
Women Angels, Miami FL


Over the course of an hour or so, we heard from three new companies (including BAN portfolio company TransactionTree) and had a few minutes for Michael Price (AngelPool Chairman) to provide some thoughts and visions for the future.

Despite a couple of to be expected technical glitches, it was a nice start to streamlining the syndication process and providing a great new resource for our southeastern ACA chapters.

Apply to Birmingham Angel Network, LLC - Create Application

It's a new year and time to kick off a great new class of companies for 2011.

Birmingham Angel Network ("BAN") will be looking for a new high growth companies to work with at our next meeting on Thursday night (Jan. 27th).

If you or someone you know would be a great fit, please tell them to submit an application before Thursday or it will be another 3 months before there is another opening. General criteria may be found at: BirminghAmangels.com/entrepreneurs.php

Submissions may be made online through AngelSoft at: Apply to Birmingham Angel Network, LLC - Create Application.







If you are a potential investor, Thursday is a great time to visit and check things out as well. RSVP at: http://ban012711.eventbrite.com/

Median exit price was up 70% to $46 million in 2010, but either way the math still works.

"The $46 million median amount paid for a venture-backed company in 2010 was 70% more than the $27 million median in 2009."Exits and amount up in 2010 by Dow Jones Venture Source

Thankfully those numbers are still in line with the the $30 million average successful exit planning assumption we have been using in our portfolio pro formas. (See the Nov. 22 blog post for more detail)

Of course, we would all be even happier if a non-typical paypal/google type 1000x slipped in there too.

LegalZoom.com Accused of Unauthorized Practice of Law and Privacy Violations

Legal Zoom (legalzoom.com) is accused of the unauthorized practice of law, as well as disclosing to third parties customers' private information:

LegalZoom and Washington State Reach Agreement Over Unauthorized Practice of Law, IP Watchdog

[T]he most egregious charge leveled against LegalZoom is that they sold, transfered or otherwise disclosed consumer information to third parties. So not only was LegalZoom offering to provide legal services to individuals without a legal license but they seem to have been collecting private information and giving away sensitive, personally identifying information such as financial information, information relating to real or personal property and information relating to family relationships. This screams for further investigation by other State Attorneys General and the United States Patent and Trademark Office. Not only does LegalZoom’s advertising lull unsuspecting consumers to believe they are being represented, but what LegalZoom learns during such representation is given away to third parties? If an attorney did that they would lose their license.

Entrepreneurship and Taxes (link)

Scott does a good job of not just stating his opinion, but also attempting to make sure that his opinion has a basis in verifiable fact and he has some great points about our current Congressional decisions on the Bush era tax cuts.

Entrepreneurship and Taxes by Scott Shane

"The United States has an enormous budget deficit, which may require tax increases to close the gap. But we need to carefully consider the law of unintended consequences when raising taxes. Much evidence shows that higher taxes discourage entrepreneurial activity, including investment and hiring by small business owners. If we let the Bush tax cuts expire, we risk shutting off already weak small business hiring and investment. Is that possibility really worth the relatively small reduction to the deficit that we might derive from a tax increase?"

As an aside, Scott also has a good book out on angel investing too...think Freakonomics for angel investors. Of course, my favorite quote being:

"Particularly promising are angel groups, which pool knowledge and money for wiser and more productive investments. In groups, angels can rely on each other's expertise, share the labor of performing due diligence, and generally insure that their money is being placed--and used--wisely. Fostering the formation of such groups may be the single most important thing that government can do to boost angel investing."

Angel Investing: Do good by doing well (WTN News)

An article worth reading:

Angel Investing: Do good by doing well (WTN News): "But the giving back is not about lowering investment standards, it’s about providing more active assistance than most VCs can provide in terms of helping entrepreneurs meet those standards. It’s about working with entrepreneurs that combine world-class ideas with the rough edges typical of high impact entrepreneurs that are new to the game and/or otherwise do not have the polish and experience – yet – to pass muster with more seasoned professional investors."

And I would go one step farther...good angel investing is not just about overlooking rough edges, but instead it is about taking well thought out and calculated risks at a very early stage in the life cycle of a high growth business, thus there are apt to be more rough edges in a typical deal than in deals done by later stage investors.

The simple economics look like this:

1. "Successful" deal(s) return 30x or more of investment (e.g. $100k investment equals $3mm or more on exit);

2. Approx 1 in 10 deals are successful *;

3. Approx. 50% return less than the investment*;

4. Average hold period for a successful exit is approx. 6 years*; thus

5. Average IRR of angel deals is approx. 27%*.

Nonetheless, despite the lofty economic motives there is significant "goodwill" (founders, community, employees, etc.) because many of those companies simply would not exist without the investment and support of early stage angel investors.

*(Numbers based on national averages included in a number of different studies. See Marion Kaufman Foundation for just a few.)