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Explaining carried interest

The Equity Kicker

Carried interest’ is the name given to the profit share schemes that investors in venture capital funds, typically called ‘LPs’, use to incentivise the partners at at the funds in which they invest.

Why Taxing Carried Interest As Ordinary Income Is Good Policy

A VC : Venture Capital and Technology

The House has passed a bill this past week that would change the taxation of carried interest from capital gains treatment to ordinary income treatment. I am in favor of taxing carried interest as ordinary income and I'd like to explain why I think it is good policy. I agree with Victor Fleischer 's basic premise that carried interest is a fee for managing other people's money.

Indirect Attack on Carried Interests by the NYC Department of Finance

Recent Buzzes - VC Experts, Inc.

Decision-makers at the New York City Department of Finance have notified practitioners that the Department is actively considering the implementation of a new unincorporated business tax ("UBT") audit policy targeted at investment partnerships, such as hedge funds and private equity funds. The likely upshot of the new policy, if ultimately adopted, is that the Department will increase its audits of such funds and will seek to deny certain expense deductions claimed by the funds

Burnham's Beat: Carried Interest Deal Cut, Let the Workarounds.

Burnham's Beat

Carried Interest Deal Cut, Let the Workarounds Begin! So Congress has apparently cut a final deal on taxing carried interest.    According the Way and Means Committee the bill will: " … prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund.    I think much of the opposition to carried interest.

Incentives and Carried Interest

Brad Hargreaves

Brad Hargreaves | startup adventures in nyc a blog by Brad Hargreaves HOME Me Press HOME Uncategorized Incentives and Carried Interest Incentives and Carried Interest The House recently passed a bill to tax carried interest at the higher income tax – rather than the lower capital gains – rates. Fred Wilson uses this argument as he writes in favor of taxing carried interest at a higher rate.

Speaking up More about VC Carried Interest Taxation and the - VCball

VCball

Why Raising Taxes on Carried Interest Doesnt Make Cents | Main. » Speaking up More about VC Carried Interest Taxation and the Destruction of U.S. One of the commentors, Stephen Larson, to my prior post , mentions that this VC carried interest treatment as capital gains is a "loophole"; I appreciate the comment deeply, but I very respectfully disagree and give him credit for sparking my thinking on this. VCball.

Carried Interest Debate Cont.: The Death of Sweat Equity?

Burnham's Beat

Carried Interest Debate Cont.: Fred Wilson has a post up this morning on the carried interest debate in which he advocates taxing all carried interest as ordinary income. At its heart, the critics of carried interest appear to be unwilling to recognize that its possible to make an intangible investment. Carried Interest Debate Cont.: Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll.

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The Tax Man Cometh: Carried Interest, Risk, Fees, and Taxes

Burnham's Beat

The Tax Man Cometh: Carried Interest, Risk, Fees, and Taxes. So there’s a move a foot by some within Congress to tax all carried interest as ordinary income instead of capital gains. In case you aren’t familiar with the term, carried interest is the share of profits that the general partner within a limited partnership receives. The Tax Man Cometh: Carried Interest, Risk, Fees, and Taxes. Burnhams Beat. Articles on Technology and Finance.

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Sloppy Reporting from The New York Times on Carried Interest Debate

Seeing Both Sides

I read the article in The New York Times on the carried interest debate and was shocked to see my name and a reference to me that read: " As the Senate Democrats sent signs that they were open to a tax increase, investors and their lobbyists mobilized quickly, warning that the proposal could stifle investments that create jobs. In fact, the trip had nothing to do with carried interest taxes and there were only three or four VCs as part of the business delegation from PBLN.

Burnham's Beat: Theater of the Absurd: Capital Gains Now Being.

Burnham's Beat

« Carried Interest Deal Cut, Let the Workarounds Begin! According to Bloomberg, there’s a nasty surprise in the bill that eliminates capital gains treatment for carried interest in investment partnerships.    Not only is the government planning on eliminating carried interest on the investment profits generated by a partnership, but they are planning on eliminating capital gains treatment on. Burnhams Beat.

IPO 3

What Is Going To Happen In 2017

A VC : Venture Capital and Technology

Here’s what I expect to happen this year: Trump will hit the ground running, cutting corporate and personal taxes, and eliminating the preferential treatment of carried interest capital gains. The loss of capital gains treatment on carried interest won’t hurt professional investors too much because the lower personal tax rates will take the sting out of it. Happy New Year Everyone.

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Memo to Congress - There are Legal Issues With Taxing Carried Interest as Ordinary Income

Recent Buzzes - VC Experts, Inc.

The carried interest debate has kicked into high gear, with legislation currently under consideration that could tax carried interest as ordinary income. Much of the conversation relates to the incentives or disincentives this would create or whether it is advisable. On that front alone, our view is that it's a bad idea. Risk takers and investors should be rewarded for creating value, and that behavior should be encouraged as much as possible.

Fund Level Vs Deal By Deal Carry

A VC : Venture Capital and Technology

A traditional venture fund will take its losses on a given portfolio of twenty to twenty five investments and earn them back with their gains before calculating their carried interest. The carried interest is the primary way a venture capital firm makes money. At USV we take a 20% carry. There are firms in the VC business that take a larger carry (25% and 30% being the other common numbers). Deal by deal carry just amplifies that.

Burnham's Beat: Google Getting Gunshy on Traffic Referral Deals?

Burnham's Beat

Carried Interest Deal Cut, Let the Workarounds Begin! Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll. IPO/M&A Lists. By Category. By Month. Recent Posts. Internet IPOs. Internet M&A. Software IPOs. Software M&A. Search This Blog. Subscribe to This Blog. RSS/ATOM Feed. Subscribe Via Email. « The Algorithm Myth And Why Google Will Be Hated | Main. UPDATE: Some More thoughts » 03/25/2010.

IPO 3

Hey Look, Software Just Ate VC!

Mark Birch

Syndicates allow you to raise any amount of money on behalf of a startup and take 20% of the carry. . And since you’re giving up 20% of carry (or more) anyway with a fund, that’s a sweet f **g deal. . And did I mention, AngelList takes a cut of the carry?

The Rise & Fall of Great Venture Firms [Part 1] ? AGILEVC

Agile VC

I’ll save these for a follow-up post because I think there are some interesting take aways and also some firms that have found hacks to either propel success or avoid pitfalls. Interesting to note that at least some of the enduring firms started as one-man bands (e.g.

Why I Don’t Celebrate Income Inequality

Both Sides of the Table

VCs also get capital gains tax rates on “carried interest,” which is what irritates the masses. Carried interest is the upside that VCs get after returning the money they raised – it is the VC “profit” if you will. Of course “carried interest” tax breaks are more at risk than founder tax breaks. What drives economic inequality in the US?

Don't Kill the VC Golden Goose! Why Raising Taxes on Carried.

VCball

Speaking up More about VC Carried Interest Taxation and the Destruction of U.S. Why Raising Taxes on Carried Interest Doesnt Make Cents. that Congress is contemplating raising taxes on venture capital fund managers by increasing taxes on what is known as “carried interest”, my heart sank. Why Raising Taxes on Carried Interest Doesnt Make Cents : Comments. Why Raising Taxes on Carried Interest Doesnt Make Cents. VCball.

Where Does VC Money Actually Come From? [Flowchart]

View from Seed

This typically has a dual purpose: generate a return on the company’s cash while also gaining insight into new startups and technologies that may be of strategic interest to the corporation. This post was originally published on the personal blog of NextView founding partner Lee Hower.

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Where Do Venture Capital Dollars Actually Come From? This Visual Explains

Agile VC

This typically has a dual purpose: generate a return on the company’s cash while also gaining insight into new startups and technologies that may be of strategic interest to the corporation.

Burnham's Beat: Contributors Wanted: M&A & IPO Transaction Lists

Burnham's Beat

« Carried Interest Debate Cont.: Googles Postini Buy Has Some Interesting Implications » 06/27/2007. As an aside, its interesting to think of how projects like this may dis-intermediate some of the data brokers that collect, collate and resell this data (such as Factset ). Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll. IPO/M&A Lists. By Category. By Month. Recent Posts. Internet IPOs. Internet M&A. Software IPOs.

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Burnham's Beat: Software and Internet IPO and M&A Lists

Burnham's Beat

Carried Interest Debate Cont.: Every month I keep a record of all significant public company activity in the sectors I am most interested in: Software & Internet. Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll. IPO/M&A Lists. By Category. By Month. Recent Posts. Internet IPOs. Internet M&A. Software IPOs. Software M&A. Search This Blog. Subscribe to This Blog. RSS/ATOM Feed. Subscribe Via Email.

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Burnham's Beat: Yahoo Buys Rivals From $75M More Than Their.

Burnham's Beat

« The Tax Man Cometh: Carried Interest, Risk, Fees, and Taxes | Main. Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll. IPO/M&A Lists. By Category. By Month. Recent Posts. Internet IPOs. Internet M&A. Software IPOs. Software M&A. Search This Blog. Subscribe to This Blog. RSS/ATOM Feed. Subscribe Via Email. Software and Internet IPO and M&A Lists » 06/21/2007. Yahoo Buys Rivals From $75M More Than Their 2001 Offer.

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How do venture capital firms make money by investing in startups?

Gust

In exchange for investing capital to help the company grow, the fund receives an ownership interest in the company. Because in the early days a company will not be worth very much, the fund’s ownership interest will be worth exactly what it paid. In many, if not most, cases, this management fee can significantly exceed the “earned” amount from the “carried interest”).

Why Internal Ventures are Different from External Startups

Steve Blank

Worse, Robert Adams and his two partners got 20% of the carried interest in the fund, resulting in payouts of $30 million to the partnership. Henry Chesbrough is known as the father of Open Innovation and wrote the book that defined the practice. Henry is the Faculty Director of the Garwood Center for Corporate Innovation , at U.C. Berkeley in the Haas Business School. Henry and I teach a corporate innovation class together.

Burnham's Beat: Indian Outsourcers: Open Source's Best Friend or.

Burnham's Beat

The Tax Man Cometh: Carried Interest, Risk, Fees, and Taxes » 04/28/2007. He has outsourced all of his IT to India (its interesting to note that he has also outsourced his CFO to India, his customer service to the Philippines, and his manufacturing to China). It is interesting to consider how this might all turn out as it may lead to a new chapter in the Open Source movement, which seems to have had 3 major chapter to date. Burnhams Beat.

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There seems to be a lack of long-term investment in startups. Why is the 3-5 year exit strategy more desirable than a 10-20+ year timeframe?

Gust

If an early stage fund therefore targets, say, a 20% annualized gross return (to compensate for the risk and for the GP’s carried interest), that means every individual company in the portfolio needs to be at least theoretically able to return that entire amount for the whole portfolio. If the VC fund took the typical 20% interest, that sets the IPO value of the company around $160 billion, or roughly eight times the value at which Google went public.

Joining The B Team

Seth Levine's VC Adventure

More recently I’ve become very interested in the B Corp movement. For a long time I’ve been fascinated by the intersection between entrepreneurship and social change.

Battery Ventures Announces New $750 Million Fund

VC Cafe

The New York Times says the new fund is a signal that Silicon Valley is being revived, but according to the Wall Street Journal , it was lower fees and carry that facilitated securing the capital: It helped that Battery proactively offered some investor-friendly terms. The firm lowered its carried interest fee–the fee that it takes on profits made in the fund–to 20% from 25% previously, though the fee would rise to 30% after the fund returns three times its capital, said Mr. Crotty.

Why Average VC Returns Don’t Really Matter

Agile VC

FoFs have a range of strategies of course, but broadly speaking LPs that invest in FoFs pay them a management fee and carried interest (on top of the fee & carry of underlying VC funds they invest in) for access, diversification, active management or a combination of all three. fund or marginally profitable fund doesn’t generate any carry for the GPs that are investing it.

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Venture Math 101

StartupCFO

The normal deal is 2% of the $100M per year in expenses and 20% of any profits (known as ‘carry’ or ‘carried interest’) after the entire $ 100M has been returned to LPs. -

How to Compensate Next-Gen Venture Capitalists

Christine.net

If you're a partner, VC compensation is pretty straightforward - you get a piece of the partnership's profits, aka a "carried interest" in the fund. Here are the top three: Vested Interest. This model is very similar to stock options: The fund creates a small pool of "carry points" that can be issued to associates (or other non-partner staff.). An associate is a issued a set number of "carry points" each year. Phantom Carry. You get $25K phantom carry.

What Is A "Venture Partner" And Why Does It Matter To You?

A VC : Venture Capital and Technology

Some common examples of Venture Partners are; former partners who are semi-retired but still want to be able to do deals, former entrepreneurs who have multiple business interests but want to be able to do deals with a VC platform, and a partner in waiting who is headed to become a full partner. All Venture Partners receive carried interest on the deals they source and manage. The amount of carried interest also varies a lot from firm to firm.

The Slowly Declining Relevance of the Venture “Fund”

Thinking About Thinking

GPs calculate their carried interest based on how the fund performs. Here is the key point: some of these firms will not allow LPs to select the fund that most interests them and invest in that fund on a discrete basis.

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Pari Passu or F.U.little guy

Professor VC

It''s also interesting how a lot of this resembles toddler behavior on the playground from "show me a little more love" to "mine mine mine" and of course, the classic playground bully.

Why New York State Wants in VCs' Pockets Too

Inc Startups

Among these is the so-called interest carry forward that lets venture capital and private equity fund partners pay a lower long-term capital gains rate on their share of future profits from investments.

Brett Berson - Turning a Portfolio into a Community.

Redeye VC

While there have been some really positive changes in the last few years, for the most part it seems that the biggest innovation in venture capital during the last forty years has been the increase in carried interest from 20% to 25%. Ever since I became a VC, one of the most frequent questions I get asked is: “Don’t you miss being an entrepreneur?

VCs See Uptick In 10-Year Returns

Inc Startups

At this time in 2011, the same rate of pooled end-to-end returns, net fees, expenses and carried interest, was 3.3 If the 2012 trend continues through 2013, venture capitalists will have something to smile about.

The VC Shakeout: Are We There Yet?

Agile VC

But it is also typically in the interests of those same stakeholders for the VC firm’s challenges not to be broadcast widely. a VC fund’s entire portfolio in aggregate, net of management fees and carried interest) a good return from an LP’s perspective would be 2.5-3.0x [ This also appears as a guest post at PandoDaily ]. Over the weekend, I read Sarah Lacy’s PandoDaily article that the VC shakeout is taking too long.

LP 31

What is a Venture Partner?

ithacaVC

Managing Partner/General Partner (I have seen some with Managing Directors too like an investment bank): top dogs that run the shop and own most of the carried interest. These roles typically do not have any carried interest. It carries cache. And it often carries carried interest too (though a lower share). One of my students just asked me what a “Venture Partner” is in the context of a venture capital firm.