First point, third line above should read

“invent” not “invest”

First point – Third line

should read “invent” not “invest”

1) a VC or PE partnership’s job is to manage money. They invest other people’s money. This is essentially a passive investment. they don’t start companies or run them, or design products or invest things, sell products. They are simply an investment vehicle for other’s money.

2) Given above, then what they get paid for doing that job is simply a salary. Nothing else. The fee is their base pay and the carry is their performance bonus.

3) If the investment results in a capital gain i.e. a start up company goes public or sold or a PE company gets sold then this gain which must be treated as capital gains must go to the investor. The investors are the LPs.

4) Therefore, only person or entity that can get the Capital Gains treatment is the actual source of money – i.e. the endowment or the pension fund or any other LP.

5) Definitely not the Fund-of-Funds. They are simply middlemen or brokers.

6) The only other people who get Capital Gains treatment are the founders / management

In the above logical and economically, socially and morally correct reasoning, there will be no dearth of funding sources. The actual people or entities with the money – i.e. the real LPs are still motivated to make risky investments. Just not with greedy car salesmen as the middlemen. There are plenty others with good qualifications who will be the middlemen without a capital gains treatment of the carry, as the source of these funds are motivated to invest.

These new managers will be working for the investors on a salary and bonus which by any stretch of the imagination is very lucrative. So there will be highly qualified takers.

Thanks you

What shameful doublespeak. You might as well be directly campaigning for new, and better, loopholes. Believe me, if there was any notable tax advantage to parking your corporation in Tuvalu, there would be articles here on “Ask the VC” dealing with questions of Delaware vs. Tuvalu.

Many people in VC are millionaires. They can retain their dignity by avoiding the cheapskate millionaire routine. You’re not entitled to your 57%-off tax loophole, and you demean yourself by claiming that it is staving off the End of the Stock Market as We Know It.

Larry’s “Tax War on Prosperity” diatribe tries to make people think investors in these funds will be paying 35%, sorry Larry, but that is not the case, it’s the managers who will no longer be paying the super low 15% on their compensation. The real investors will still pay 15% on their gains.

I guess Larry’s role of being against any thing taxes in the cable world is like Lou Dobbs’ role of being against anything immigration (”illegal” – sorry Lou).

Make no mistake here: if the Democrats in Congress get their way, their punitive, soak-the-rich, tax hiking program would constitute the biggest attack on capital since the 1930s.

Two key, front-page, news stories (yesterday’s New York Times by Aaron Ross Sorkin, and this morning’s Wall Street Journal by Sarah Lueck et al) lay out the Democrats’ reckless strategy to essentially abolish the 15 percent capital gains tax preference for risk investing, and raise it by 20 percentage points to the already too high 35 percent corporate rate.

And, that’s not all.

The left wing’s broad based assault on wealth, investment, and savings would extend far beyond Blackstone’s successful Wall Street IPO today. The Democratic strategy would affect all private partnerships engaged in investment risk—this includes buyout funds, hedge funds, venture capital firms, real estate partnerships and oil & gas deals that qualify for the 90 percent passive income tax preference.

Their ill-advised strategy would strike a dagger into the heart of U.S. capital formation.

Nobody knows for sure whether Congress will green light these anti-growth ideas. The great presumption (and hope) is that President Bush would veto them if they did.

But right now, these newspaper reports are giving the stock market serious heartburn. The mere threat that Congress would embark on such a program of wealth destruction and economic impoverishment—all in the name of taxing rich people with the usual inside-the-beltway mantra of “tax fairness”—has investors reeling.