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Private equity and venture capital managers are compensated in two main ways:annual management fees (taxed as ordinary income) and a 20-30% cut of the profit on deals when realized. Since most investments are held for a long period of time -- they are taxed at the lower capital gains rate of 20%.

In April, the Biden administration proposed increasing this capital gains rate to 39.6%!  Then last week, Sequoia Capital is reportedly considering changing its investment return distribution strategies to avoid the proposed tax increases:

  • Certain portfolio companies will be distributed before those companies’ IPO, as opposed to afterward - this could potentially impact the return of the fund (TVPI) as it won't be able to take advantage of the IPO pop. 
  • Shares will no longer be distributed directly to GPs, but rather be placed in a SPAC - this will further delay when a GP would get any benefits from their investment and it's unclear how SPAC payout would be taxed. 

The only two certainties in life are death and taxes. I guess it's hard for VCs to escape this one... 

This week a total of 22 startups raised $871.3M in funding, M&As:

  • $243.8M goes to 7 Enterprise startups
  • $68M goes to 2 FinTech startups
  • $100M goes to 1 InsurTech startup
  • $39M goes to 1 Retail startup
  • $5.3M goes to 1 Construction startup
  • $2M goes to 1 Food and Beverage startup
  • $243M goes to 5 Healthcare startups
  • $163.6M goes to 2 BioTech startups
  • $6.6M goes to 2 Other startups
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Edith

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  Funding (300 miles radius from Silicon Valley)

Enterprise FinTech InsurTech Retail  Construction Food and Beverage Healthcare BioTech Others IPO & M&A (300 miles radius from Silicon Valley)  
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