Joe Milam, CEO and Founder of AngelSpan, is a leading advocate for a federal tax inventive that is intended to encourage investment in new businesses. We spoke with him about the incentive and what it means for entrepreneurs.

What is AngelSpan?

AngelSpan provides tools and resources for investors to invest better, and startups to perform better. The core of our solution is the best-in-class Investor Relations & Reporting services, which help startup CEOs execute with more efficiency, have easier funding rounds, and elicit more support from their investors and stakeholders.

What do you see as the most pressing needs for entrepreneurs, thinking primarily about what policymakers can do to improve outcomes?

More efficient access to capital remains the number one issue for startup ecosystems outside Silicon Valley, New York City, Boston, and (maybe) Los Angeles, where over 80% of venture activity take place.

There also needs to be a more meritocratic path to funding startups, where the investors’ biases are removed from the capital allocation process, where money is invested based on data and objective entrepreneurial progress instead of where the startup is located, what they look like, and who they know.

America’s New Business Plan calls for policymakers to expand equitable access to funding. You’ve been a leading advocate for a federal tax incentive that is meant to encourage investment in new and small businesses. What is this tax incentive and why does it matter?

Section 1244 of the tax code includes an ‘Impact Incentive’ for qualified small business stock (QSBS). It allows for losses on early-stage venture investments to be deductible against ordinary income — a better write-off than a 501c3 charitable contribution. For impact investors, this means that an investment in an otherwise overlooked entrepreneurial venture is a better financial transaction than giving the same money to a non-profit working to draw attention to the issue of bias in funding.

Yet few people know about Sec 1244, including professionals, investors, accelerators, and startups themselves.

Greater awareness and use would accelerate funding for more startups, bringing capital to entrepreneurs with more diverse backgrounds and in more diverse locations around the country.

If Sec. 1244 was modified what could the impact be for entrepreneurs, especially entrepreneurs of color, women business owners, and rural entrepreneurs who face extra barriers to accessing capital?

By simply de-risking an investment in a QSBS Sec. 1244 qualified company — and it’s easy to qualify — more funding would flow to more startups, regardless of their location or profile. Impact investors all over the country interested in supporting those underrepresented and overlooked can confidently invest in QSBS-qualified startups and know their investment is de-risked on an after-tax basis.

That is a classic use of fiscal policy tools (like the Opportunity Zones legislation), to stimulate wanted investor behavior. And like the Opportunity Zone Funds model, ‘QSBS Funds’ could be formed to stimulate more capital flows to underrepresented communities of entrepreneurs, while still optimizing on the risk-adjusted returns for those investors.

What work have you done — or have you seen others in your space do — to advocate for relevant policy change, such as modifying Sec. 1244?

My whitepaper, The Impact Incentive, details how Sec. 1244 can be modernized to meet needs. The whitepaper has been delivered to multiple groups in Washington D.C., including Members of Congress, policy advocates and hundreds of others involved in impact investing. I’ve also spoken alongside my friend Claiborne Booker to congressional staffers at multiple events in Washington D.C. at the invitation of Kevin Kimble and the Financial Services Innovation Coalition.

Members of the Start Us Up coalition have been active, too including the Small Business & Entrepreneurship Council and the Center for American Entrepreneurship.

How can others get involved?

Advocates can forward The Impact Incentive to policymakers and anyone interested in mobilizing capital for more startups around the country.

You can learn more about AngelSpan at their website, and read The Impact Incentive here.