Senator Olympia J. Snowe (R-Maine) and Senator John F. Kerry (D-Massachusetts), the Chair and Ranking Member of the Senate Committee on Small Business and Entrepreneurship, today introduced the “Access to Capital for Entrepreneurs Act of 2006 (ACE),” legislation (S. 3950) that would encourage equity investments in small businesses by providing “angel investors” with a tax incentive to fund new small business enterprises. Angel investors are high-net-worth individuals who invest in and support start-up companies in their early stages of growth.

“For entrepreneurs and other aspiring small business owners, a self-evident truth since the founding of our country is that it takes money to make money. Our legislation makes that goal a little easier for aspiring small business owners by ensuring that our entrepreneurs have access to venture capital and credit markets so they can continue to drive America’s economic growth and job creation,” said Senator Snowe. “Since small businesses represent 99 percent of all employers and create nearly 75 percent of all net new jobs, Congress must do everything within its power to help them grow and thrive.”

“Investing in America’s small businesses means reinforcing American entrepreneurship and American communities,” said Senator Kerry. “Many of America’s leading businesses were given the ability to grow as a result of strong investment, but investors are less likely to invest in a new small business than larger, more established ones. For this reason, Senator Bumpers and I worked to grow small business investment by providing a capital gains incentive. This legislation complements the existing capital gains exclusion, and will further encourage investors to look beyond the Fortune 500 towards energizing the small business economy.”

Under the Access to Capital for Entrepreneurs Act of 2006, angel investors would be eligible for a 25 percent tax credit to offset up to $500,000 of investments per year. Because the legislation limits the investment per small business to $250,000, which is the amount a typical entrepreneur requires to begin operations, an investor would have to invest in at least two companies to receive the full $500,000 tax credit. To qualify for the tax incentive, the angel investor must have an income of $200,000 over a two-year period, or net worth of $1 million. It’s patterned after successful tax credits that have been enacted in 21 states, including Maine.

Senators Snowe and Kerry said that recent research shows that venture capitalists are now targeting their investments for larger businesses or for later in a business’s development, leaving precious little seed money for new businesses. Today, venture capitalists invest an average of $7 million per deal, an amount that far exceeds the needs of a nascent small business. Moreover, in 2005, of the $21.7 billion invested by venture capitalists, just 3.3 percent was allocated to start-up small businesses showing the necessity of this legislation.