Victory! Software-as-a-Service Bill Set to Become Law

This week, the Senate unanimously approved the House changes to Senate Bill 257 (Sales Tax on Software). This bill began as a top Indiana Chamber goal; it was embraced by the administration and made a priority of the Governor, the Senate got it introduced and rolling, then the House took good legislation and made it even better.

The Senate concurrence vote means the bill is on its way to Gov. Holcomb and there will be SaaS (software as a service) tax clarity in Indiana!

This is exactly what the Indiana Chamber has been working toward since last summer and it is good news for the SaaS industry. Senate Bill 257 is a straightforward piece of legislation that can reap very real economic benefits for the state. We thank legislators for listening to our members and taking this important step forward to demonstrate Indiana’s commitment to embracing the growth of the SaaS industry. The legislation puts Indiana in a very favorable position to attract more and more of this burgeoning business to our state.

SaaS Bill Even Better After Amendments

Senate Bill 257 (Sales Tax on Software) took a very positive turn this week when it was amended by the House Ways and Means Committee. After hearing considerable testimony from members of the Chamber’s Technology and Innovation Policy Committee in a hearing last week, it appears the message was received! That message: It would be beneficial to the software industry to provide simple clarity regarding the exempt status of software as a service (SaaS).

The Ways and Means Committee amendment deleted a good amount of language that we were concerned could raise new questions and run counter to the objective of reducing uncertainty about software transactions.

These changes make clear that it is only in the case where prewritten software is delivered electronically (downloaded) that the transaction is considered a retail sale subject to sales tax. And when someone buys the right to remotely access software, the transaction is not taxed. Through these positive amendments, the bill now more directly serves the objective of clarifying that SaaS transactions – those involving the use of software to essentially provide a service – are excluded from taxation.

The Indiana Chamber has been making the case for the need to eliminate the previously existing ambiguous language and convincing legislators that a clear, simple, straightforward piece of legislation can reap very real economic benefits. Our efforts are reflected in this much streamlined version of SB 257. We thank the Ways and Means Committee for listening to our members and taking this important step forward to demonstrate the Legislature’s commitment to embracing the growth of the SaaS industry in Indiana. The revised bill puts Indiana in a very favorable position to attract more and more of this burgeoning industry to our state.

VC Numbers Look Good in Q2

PricewaterhouseCoopers and the National Venture Capital Association are the leaders in surveying venture capital investment deals and statistics. And the State Science & Technology Institute is the best at putting the numbers in perspective.

Below is part of the analysis from a strong second quarter of this year. Also, SSTI has a spreadsheet that breaks down investments by quarter over the past six years.

In the second quarter (Q2) of 2013, venture investment totaled $6.7 billion over 913 deals, according to the quarterly survey by PricewaterhouseCoopers (PWC) and the National Venture Capital Association (NVCA). Compared to the first quarter of 2013, the amount of venture capital investment increased 12 percent and the number of deals increased 2 percent. Although still well below venture capital investment highs in 2007, Q2 2013 had the largest total amount of investment in a year.

In total, $12.6 billion in venture investments has been made in the first half of 2013 in 1,776 deals. This represents a 3.8 percent decrease in the investment amount compared to the first half of 2012, but a slight uptick, 4 percent, in the number of deals completed.

The software and biotechnology sectors were the largest two recipients of venture capital investments. The software industry received $2.1 billion in investments, although this was a 7 percent drop from the previous quarter. Biotechnology rose 41 percent in investments to $1.3 billion in 103 deals. Other sectors receiving large totals of investments were IT ($654 million) and medical devices ($543 million).

Clean technology, which includes a range of activities across sectors, captured $364 million in 43 deals. This is a 6 percent investment decline and 31 percent deal decline, and is the lowest level since the fourth quarter of 2006.

Breaking investments down into company stage, seed and early stage companies together accounted for 57 percent of deals made, while expansion stage companies had 23 percent and later stage companies had the remaining 20 percent. Early stage companies closed on $137 million in 37 deals in Q2, while early stage companies had their highest levels of investments in six quarters.

First-time financings were also up in Q2, raising 24 percent to $1.1 billion, a 10 percent increase from Q1. The first-time financings were 17 percent of total investment amounts and 33 percent of total investment deals in the quarter.

Compared to the rather pessimistic survey from the first quarter of this year, and despite a decline in clean technology investments, this Q2 report appears to offer some optimism, with more than half of the sectors surveyed increasing in investment dollars.  In addition, a 39 percent rise to $1.9 billion was invested in “internet-specific companies” in Q2, with five of the 10 largest rounds in the quarter in the internet-specific sector. This suggests venture capitalists are looking for investment possibilities in more flexible and nimble companies with less overhead and low-capital-intensive operations.

 

 

In the second quarter (Q2) of 2013, venture investment totaled $6.7 billion over 913 deals, according to the quarterly survey by PricewaterhouseCoopers (PWC) and the National Venture Capital Association (NVCA). Compared to the first quarter of 2013, the amount of venture capital investment increased 12 percent and the number of deals increased 2 percent. Although still well below venture capital investment highs in 2007, Q2 2013 had the largest total amount of investment in a year.

In total, $12.6 billion in venture investments has been made in the first half of 2013 in 1,776 deals. This represents a 3.8 percent decrease in the investment amount compared to the first half of 2012, but a slight uptick, 4 percent, in the number of deals completed.

The software and biotechnology sectors were the largest two recipients of venture capital investments. The software industry received $2.1 billion in investments, although this was a 7 percent drop from the previous quarter. Biotechnology rose 41 percent in investments to $1.3 billion in 103 deals. Other sectors receiving large totals of investments were IT ($654 million) and medical devices ($543 million).

Clean technology, which includes a range of activities across sectors, captured $364 million in 43 deals. This is a 6 percent investment decline and 31 percent deal decline, and is the lowest level since the fourth quarter of 2006.

Breaking investments down into company stage, seed and early stage companies together accounted for 57 percent of deals made, while expansion stage companies had 23 percent and later stage companies had the remaining 20 percent. Early stage companies closed on $137 million in 37 deals in Q2, while early stage companies had their highest levels of investments in six quarters.

First-time financings were also up in Q2, raising 24 percent to $1.1 billion, a 10 percent increase from Q1. The first-time financings were 17 percent of total investment amounts and 33 percent of total investment deals in the quarter.

Compared to the rather pessimistic survey from the first quarter of this year, and despite a decline in clean technology investments, this Q2 report appears to offer some optimism, with more than half of the sectors surveyed increasing in investment dollars.  In addition, a 39 percent rise to $1.9 billion was invested in “internet-specific companies” in Q2, with five of the 10 largest rounds in the quarter in the internet-specific sector. This suggests venture capitalists are looking for investment possibilities in more flexible and nimble companies with less overhead and low-capital-intensive operations.

 

A Slightly New Direction for Angels

The good news is that angels are still investing. No, the dollars are not quite the same as during the glory days. But the numbers of deals in the first six months of this year increased by 6% over the same period in 2008.

Angels are also sprouting their wings differently in other ways. The Center for Venture Research (as reported by the State Science & Technology Institute) has the details:

The average deal size has fallen by 31 percent since early 2008.

The report attributes the change to lower company valuations and to angel investors taking a more cautious approach to investing without decreasing their level of activity. Investors have also begun shifting their focus away from seed- and startup-stage firms in order to support their portfolio companies and reduce their risk.

Seed- and early-stage deals have made up only 27 percent of angel investment in the first half of the year, its lowest point in several years. While expansion-stage investment remained unchanged, post-seed- and startup-stage investment rose to 58 percent of angel activity. Though angel capital still has a reputation for a focus on early-stage investments, later-stage deals have represented a majority of angel activity since 2008.

Health care has expanded its lead as the most popular sector for angel investment with 28 percent of all angel deals, according to the report. Software, once the leading angel recipient, represented only 14 percent of investment. The industrial/energy sector grew to 13 percent of deals, up from 10 in the first half of 2008, which the report attributes to a continued interest in green technologies.

Read the full report from the University of New Hampshire Center for Venture Research.