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.

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.

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.

Update on Carried Interest Legislation

Recent Buzzes - VC Experts, Inc.

As drafted, however, this "carried interest" legislation would affect members of many existing partnerships, including small businesses, family partnerships, corporate joint ventures and other partnerships that are not commonly thought to be the subject of the legislation. This legislation is not limited to holders of "carried interests." Status of Carried Interest Legislation in Congress. Result : All interests in FLP are ISPIs. By Bradford D.

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.

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.

Carried Interest Deal Cut, Let the Workarounds Begin! UPDATE: Some More thoughts

Burnham's Beat

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.  The final solution of taxing carried interest at 75% of ordinary income is obviously just a political compromise to get the deal done. 

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.

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.

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

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?

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.

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.

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The Economics of VCs Recycling Management Fees

Feld Thoughts

The post specifically discussed three items: Management Fees, Recycling, and Carried Interest. Plus, as a bonus, you get $56m of carry (vs. 50m of carry in the case where you don’t recycle proceeds.).

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.

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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.

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.

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.

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.

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.

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.

Stock 198

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”).

Theater of the Absurd: Capital Gains Now Being Eliminated on Sale of VC/PE Management Companies

Burnham's Beat

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. the sale of any firms, including hedge funds, founded by financiers to manage funds that generate carried interest. “.

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.

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.

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.

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?

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.

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.

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.

How VCs Make Money….Hopefully

ithacaVC

Now, there are interesting ways for the GP to fulfill its portion of a capital call using “fee waiver”, but I am not going to address that here. Fourth, GP1 is entitled to a carried interest in fund profits. Therefore, the returns from the sale/IPO of the fund’s portfolio companies must clear capital commitments before GP1 gets any carried interest. I thought it would be useful to demystify how VCs make money. Here is a short explanation.

Second Quarter Was Kind to VCs

Inc Startups

VC Horizons One-year investments showed the greatest improvement among those in the index, which is based on pooled end-to-end returns, net of fees, expenses, and carried interest.

Barney Frank says: Don't Mess with VCs or Angels

Seeing Both Sides

On Financial Reform, Barney Frank was very direct when I pressed him on the myriad restrictions that are being discussed in the Senate bill around angel investing and the discussions about taxing carried interest. Here's what he said: "We will exempt venture capital from the carried interest tax.". "We

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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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.

Am I just a greedy VC?

Seth Levine's VC Adventure

My partner Jason has an impassioned post up about the carried interest debate currently taking place in Congress. I point this out not to get into a political debate about the benefits of taxes, the proper level of tax or even the correct taxing system but to be clear that my views on carried interest are not part of some larger agenda around reforming the tax system or eliminating it all together.

Top 29 Startup Posts May 2010

SoCal CTO

He’d wasted a year of his life and had a pile of stock options that weren’t very interesting. He started targeting the ad by location and interest, and the number of potential people he was reaching began decreasing on screen (Facebook tells you dynamically). He shares a lot of interesting info about his strategy, and it's about as diametrically opposite to my strategy as you can get.

Burnham's Beat: Fortune Magazine Fight Fest: Private Equity vs. VC

Burnham's Beat

The topic de jour was the whole carried interest taxation debate. The panel had some pretty interesting things to say and also revealed some very stark divisions amongst the various players in the carried interest drama. That said, it will be very interesting to see if the NVCAs gambit pays off and one has to imagine that the NVCA wouldnt be pursuing this strategy if they didnt have a bunch of votes already lined up for it. Burnhams Beat.

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.