Facing An Early Death, Michigan’s Angel Credit Program Finds Few Takers So Far

7/19/11Follow @xconomy

If Michigan’s angel investor tax credit died an early death and no one was around to notice, did the program ever exist?

Come December 31, we’ll find out.

The would-be three-year, $27 million program designed to stimulate early stage funding of startups, will end at the end of this year, the victim of Gov. Rick Snyder’s tax reforms and budget wrangling. The program began this past February.

That means investors have less than six months to grab a piece of $9 million in credits.

Last call folks!

You’d think there were would be a stampede towards the proverbial bar. But so far, the numbers have been less than impressive, suggesting potential angels, wealthy individuals who invest anywhere from $25,000 to $200,000 in a startup, are taking their sweet time.

The Michigan Economic Development Corp. (MEDC), which administers the program, has awarded a mere $370,000 to 26 investors in six startups. The agency is also reviewing applications for another 27 investors seeking to fund seven startups.

Applicants who miss the Dec. 31 deadline are out of luck and any unused money disappears in fiscal 2011. “I certainly hope [investors] use all of the $9 million,” says Mike Flanagan, MEDC’s Capital Markets Team Leader.

The lackluster numbers are somewhat puzzling. We know there’s no shortage of startups seeking funds. And there’s not a whole lot of people who will pass on free money.

Like college students who start writing their papers the night before they’re due, Flanagan suspects angel investors will rush forward with applications as the deadline approaches. Due diligence also takes time, he says.

In any case, the program has already accomplished one crucial goal, Flanagan says: the creation of more organized angel groups who will presumably stick around long after the credit expires. Before the program began, there were five angel groups in Michigan; today, there are close to 40.

And the angels, usually inexperienced, unpolished investors, are showing signs of increasing sophistication.

For example, Grand Angels in Grand Rapids, MI and BlueWater Angels in Midland, MI, said Monday they will join forces to fund AzulStar, a Grand Haven, MI-based startup that provides WiMAX broadband Internet and voices services to residential, business, and government customers.

The deal, terms which the angels did not disclose, marks the first time two Michigan angel groups have agreed to co-invest in a startup. Grand Angels has invested over $980,000 alone this year.

One only hopes that other angels will follow Grand Angels’ example by the end of the year.

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  • http://iQ-Telematics.com Mouhamad A. Naboulsi

    The amount was respectable, but now it is “Peanut” in the greater scheme. Angels are not interested in Peanuts, nor are VCs and they will use their own business model that allows them more freedom in investing in ventures of their own choosing.

    Money is better invested directly to entrepreneurs instead of getting others in the mix.