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GOVERNMENT SUPPORT FOR ANGEL INVESTING
ment decisions. The co-investment funds leverage the investment by angels, providing additional capital that increases the deal size, gives businesses a longer finan- cial runway and decreases the time that they have to commit to fundraising while enabling angels to spread their capital over a larger number of deals. In some cases, the co-investment program even offers the partner angel organization a deal fee: this represents a significant source of income for the running costs of such organizations. 7
is a need for tax incentives to be carefully designed to minimize these negative outcomes and maximize pos- itive incomes. Since angels invest for capital gain this might suggest that tax incentives should be focused on tax relief on capital gains, the provision of loss relief and the ability to carry forward losses, with explicit in- centives to reinvest gains back into the entrepreneurial economy. A further form of intervention is the creation of gov- ernment funds that co-invest alongside angel organiza- tions. This is a much more cost-effective way in which governments can support the entrepreneurial finance market rather than creating their own funds or investing in private-sector venture capital funds. As angels have 'skin in the game,' they perform their own due diligence, invest their own money and make their own invest-
7 For a discussion of the successful and internationally emulated Scottish Co-Investment Fund, see : Harrison, R (2018) Crossing the chasm: the role of co-investment funds in strengthening the regional business angel ecosystem, Small Enterprise Research, 19:4, 285-311. https://www.tandfonline.com/doi/pdf/10.1080/13215906.2018.1 428910
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