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GOVERNMENT SUPPORT FOR ANGEL INVESTING
Section 3.9). Tax incentives reduce the downside risk if a tax credit is applied to the amount invested and in- crease the upside if capital gains are not taxed. There is evidence that tax incentives do have a positive impact on angel returns. Supporters claim that they attract new money into the market. In the UK, which offers substan- tial tax incentives, many angels say that that would cut back their investment activity or withdraw from the mar- ket if they were eliminated. Critics, on the other hand, say that it creates market distortions, predominantly attracting passive investors, and attracts investment to companies with very low profitability, most of which dis- appear after a few years. It also attracts inappropriate and inexperienced investors into the market. They also point to its regressive distributive effect, passing on the risks to the taxpayer population while restricting the up- side benefits to the investors. This suggests that there
proaching angel investors for funding. There is a clear consensus among investors that this type of funding enhances the investability of businesses by enabling them to achieve some early milestones, thereby de-risk- ing the project. Angels, therefore, respond positively to investment opportunities where this type of funding has been secured. Angel organizations sometimes play a key role in signposting businesses to support or facil- itate the private investment that is necessary to unlock government support through the matching of funds. As noted in previous reports, angel tax incentives are also a way in which governments seek to increase the pool of early-stage finance. The rationale for this form of support is that investing in new and early-stage ven- tures is high risk. Returns are highly skewed, with most investments failing to generate a return (see footnote in
2023 ANNUAL REPORT ON ANGEL INVESTING IN CANADA
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