Tech Coast Angels has launched an innovative way in which the angel network can assist its members realize tax losses at Zombie companies (companies that have essentially shut down but have not dissolved). The new approach will be announced at the Angel Capital Association Summit next week in Philadelphia.
One of any angel investor’s biggest challenges is what happens when an investment turns essentially worthless, yet the company does not shut down or claim bankruptcy. This can happen either due to struggles in the company’s business, or through a recapitalization of the equity of the company. Without a document of dissolution, an angel investor cannot declare a tax loss, and the injured startup continues to haunt the investor’s bottom line. While there have been solutions (such as selling holdings to a friend for $1), those answers seem complicated, involve extensive paperwork–and, in reality, most angels don’t pursue them.
“TCA’s Lost Causes Fund provides our members with a solution to these moribund startups on life support,” explained John Harbison, chairman of Tech Coast Angels. “Members can sell shares of a Zombie company to TCA at $1 per holding, which gives them a legitimate tax write-off, since the transaction is documented and irreversible.”
This allows TCA’s members to accelerate recognition of their losses and improve returns.
The Lost Causes Fund is available only to members of Tech Coast Angels, and the holding must be in a TCA Portfolio company. Should there be a “Lazurus” resurgence of the company and an eventual gain, the angel network will donate any net proceeds for charitable purposes to support entrepreneurship.
Mr. Harbison will discuss the details of TCA’s Lost Causes Fund at The Angel Capital Association Summit in Philadelphia. His presentation is scheduled for Tuesday, May 9 at 11:00 am. Mr. Harbison is also available for interview before and after the ACA Summit. Members of media attending the ACA Summit may also request an interview.