The Diligent Observer Podcast

Special Episode: What Does the Big Beautiful Bill Mean for Angel Investors?

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On July 4, 2025, Trump’s “Big Beautiful Bill” was signed into law. 

Here are the takeaways for angel investors. 

The Good News 

  1. R&D expenses can now be deducted immediately instead of spreading over five years. Example: portfolio company spends $1M on research, they get the full tax benefit upfront rather than spreading out $200K annually. This is huge cash flow impact for software, deep tech, and biotech companies.
  2. Qualified Small Business Stock (QSBS) exclusion got a serious upgrade. Shareholders can now exclude up to $15M in gains per company (up from $10M), and don't need to wait the standard five years to receive benefit. Holding for three years now yields a 50% tax exclusion, and four years gets 75%. More companies qualify too - the asset limit jumped from $50M to $75M.

The Concerning Stuff 

  1. International talent just got significantly more expensive to bring to the US. If founders are planning to relocate overseas hires, budget a few extra percentage points per head. 
  2. Clean tech investors are facing a rough 6-48 months as credits for EVs, solar, wind, and clean hydrogen etc get phased out. If you're invested in this space, consider giving your founders some TLC because they’re definitely not getting it from this administration. 
  3. University endowments are getting hit with additional taxes, which may choke VC capital flow. Since angels often co-invest alongside VCs, I expect a tighter funding environment for follow-on rounds.

Bottom Line 

This is generally positive for most angels, the major exception being clean tech investors. The QSBS changes alone could save hundreds of thousands on exits, and the R&D benefits could make deep tech more attractive. Just be ready for a potentially tougher institutional funding environment ahead.

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Andrew Kazlow: [00:00:00] Welcome to the Diligent Observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

Welcome to a special episode of the Diligent Observer Podcast. I'm your host, Andrew Kazlow, and I am here today to break down the big, beautiful bill that just recently passed into law. I was personally super curious what all this might mean for angel investors. I've done some analysis. And wanted to share that with you all as I'm sure you are also interested.

So today we are going to get into some of the wins, some of the things that I'm excited about, uh, some things that I am concerned about and that may have, uh, adverse impact on some of our portfolio companies. Uh, and then I'll share my overall thoughts. Should be a short episode and I am excited to jump [00:01:00] in.

Okay, so starting with the good news, the things that I'm excited about, number one, r and d deduction. So previously r and d expenses generally needed to be spread over a five year period. Now with this newest change portfolio, companies can deduct r and d expenses immediately, so in the same year that they are incurred, uh, this only applies to domestic r and d, but that's where the majority of, uh, the angel investments that I am around operate anyway.

So if you are like me here in the us. That's not a huge concern. Um, so just thinking about what this means practically, if a SaaS company, if a portfolio company is spending a million dollars on engineering under the old rules, they would need to deduct 200 k of that million dollars per year over a five year period.

While with these new rules, they can actually take that full million dollar deduction in year one, which is a massive. [00:02:00] Benefit from a cash flow perspective. So, uh, I, I think that this is gonna be a huge benefit for software companies, deep tech, uh, biotech, anybody that's doing serious r and d is likely going to benefit from this change and makes deep tech investments quite a bit more attractive, at least from a cashflow standpoint.

okay, so the second major change that I'm pretty excited about is that the bill dramatically expands the scope of qualified small business stock or Qs, bs. Now, this is a big deal for angel investors because let's say I invest a hundred k in a startup you know, six years later, That a hundred K is now worth $5 million. So one, this is a great investment. I'm super excited. I'm gonna talk about this for forever, but typically that would be a $4.9 million capital gain. If I didn't have QSBS, let's just assume that I [00:03:00] was taxing this at a 20% rate, that $4.9 million gain, I would pay 20% in taxes.

So that's almost a million dollars in taxes that I would owe to the federal government. But with QSBS, I would pay $0 in federal taxes, so a million dollars that I get to keep in my pocket. Basically QSBS juices, the winners, it, it, it provides massive tax savings on successful exits. So what's the change?

Well, it was already in place, already Very meaningful for angels, but what's new is that shorter holding periods now provide benefits. So previously investors had to hold the stock for a minimum of five years to get a hundred percent exclusion. That's still the case, but at three years, an investor could get a 50% exclusion, or at four years, an investor could now get 75% exclusion, meaning that if that same example [00:04:00] happened after just three years instead of six, instead of getting no benefit, as is the rule today, I would be able to exclude federal taxes on 50% of that capital gain, thus saving me.

About a half a million dollars, which is still pretty nice. Also, the per company limit has increased from $10 million up to $15 million, meaning that I can now exclude capital gains on up to $15 million per company. Additionally, companies can now have up to $75 million in assets and still qualify, which is an increase from the $50 million that is in place today.

Basically what this means is more tax free gains, faster liquidity, and bigger companies will qualify.

One other change worth mentioning is if you happen to have portfolio companies that are heavily reliant on physical equipment, so hardware or manufacturing businesses. There were some modest improvements [00:05:00] to depreciation rules that could help even more with cash flow.

So not the same scale as the r and d changes that I just talked about, but still worth mentioning.

All right. Let's look at some of the things that are a bit concerning and investors should be aware of when working with potential or current portfolio companies. Number one is that international talent just became significantly more expensive, specifically bringing international talent to the us So offshore teams won't be affected by this, but.

Fees have increased significantly for work authorization, visas, things like that. There are a variety of different fees involved here, but The main point is that relocating international talent to the US is now more expensive than it [00:06:00] was before. I won't get into specific details on each of the fees 'cause it's very complicated and I'm not smart enough to understand all of that. But worth mentioning, I think this could actually help with the remote first kind of offshoring, uh, labor arbitrage trend that we're seeing across the ecosystem. Um, as this may now incentivize folks to keep talent offshore rather than bring them here, but, remains to be seen.

So if you're a founder listening to this and you're considering bringing international talent physically to the us, I would add a couple percentage points to your budget to make sure that you're covered.

Okay, next up is, it is not a fun time to be a clean tech investor, um, over the next six to 48 months. A ton of credits are being phased out. So this is gonna affect EVs, solar, wind, home efficiency, clean hydrogen, and more. Uh, and so if [00:07:00] I am, so I'm not personally invested in the clean tech space, but if you are an investor listening to this and you have clean tech investments in your portfolio, I would, I would consider reaching out to them and making sure that they understand what.

Is happening here and can articulate a strategy for how they're going to deal with this. Uh, these are also worth digging into a bit further if you're active in this space, to make sure that you're up to speed with what is actually being cut and what is remaining.

One other thing worth mentioning, I'm sure you've seen the, I'll call it drama between Harvard and uh, the federal government.

Well, this bill includes additional taxation requirements for universities and endowments. Assets. Uh, and so basically the impact here, without going into the details, is that it seems like there will be less capital available for [00:08:00] venture investing since many VCs are largely funded by some of these significant endowments, Harvard, Yale, MIT, et cetera.

So this could have some follow on effects whereby there's just less private capital available for. Early stage startups. Uh, obviously angels are oftentimes not leading rounds. Sometimes that is the case, but often co-investing alongside VCs. Uh, and so this just means that there's potentially going to be less capital available for VCs to invest in these private ventures than there may have been otherwise.

So likely some ripple effects there. Relevant for angels.

Okay, so what do I think about all this? Well. In general, I feel like this is a positive for the average angel. Uh, big exception being our clean tech investor friends. this is tough. It's gonna be a harder path and there's just not as much [00:09:00] overall support for the clean tech ecosystem as there was just a few years ago.

So, Cleantech investors aside, I think the broader angel ecosystem. May benefit from these changes. QSBS adjustments I think are fantastic. Like there's, there's not really any downsides there that I see R and d benefit also nice. Uh, I don't think it's massive because a lot of the deep tech companies that we're investing in already have super deep J curves.

So if they're already burning a million or two a year, you know, this now allows them to burn an extra million that they otherwise would've spread out over. Five years. Um, so there's still some benefit, but it, it's not massive.

The additional fees on international talent don't have me overly stressed. I do think there will be impact, and in some situations that may influence a decision. [00:10:00] However, an extra percentage point or so on. Each team member's salary doesn't break the bank. And so I'm not overly concerned about those increases for the typical founder who's raised, you know, a series A and is, is hiring a couple dozen folks anyway.

So main action items for the angel community. Uh, I would take a look at, I would take a closer look at r and d heavy portfolio companies. I would revisit my clean tech investments if I have those. If I'm active in that space, revisit valuations and just check in with those founders to see how they're doing and how they're navigating all of this.

I would probably pay more attention to r and d plans, r and d investment during diligence.

And I would keep an eye out for any adjustments or other changes that could come through. So, uh, thanks for listening. I hope this is [00:11:00] helpful. Uh, if anybody else has insights or, you know, notices something in this 330 page behemoth that I missed, let me know. I. And I'll see you next time.

Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals, and more straight to your inbox so you never miss a thing.

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