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, 3 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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