EXECUTIVE SUMMARY Policy Recommendations
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Second is government co-investment schemes that in- vest alongside angel organizations. This is a much more cost-effective way in which governments can support the entrepreneurial finance market than creating their own funds or investing in private-sector venture capital funds.* Co-investment funds leverage the funds invest- ed by angels, providing additional capital that either in- creases the deal size, giving businesses a longer finan- cial runway and decreasing the time that they have to commit to fundraising, or enables angels to spread their capital over a larger number of deals. Third is tax incentives. Investing in new and early-stage ventures is high risk. Tax incentives reduce the down- side risk if a tax credit is applied to the amount invested and increase the upside if capital gains are not taxed. There is evidence that tax incentives do have a positive impact on angel returns. However, the effectiveness of
tax incentives is controversial. This suggests that there is a need for any tax incentives to be carefully designed. Since angels invest for capital gains this might suggest that tax incentives should be focused on tax relief on capital gains, along with the provision of loss relief and the ability to carry forward losses, with explicit incen- tives to reinvest gains back into the entrepreneurial economy.
*Due to the significant administrative burden of managing a fund.
BY PROFESSOR COLIN MASON
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