Will Biden increase funding for Torpedo Venture?

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Not all business leaders are wary of the tax increases proposed by President Joe Biden. Alan Patricof, a seasoned venture capitalist, says the venture capital world can handle higher drawdowns, giving it a shot along with many of its peers.

“I believe the amount of money that goes into startups will be just as big as it is now,” said Patricof, who has helped seed Apple and many other now powerful Silicon Valley companies to their beginnings. “Entrepreneurs aren’t going to stop and say, ‘Damn, the rate of capital gains is going up. I’d better not start my business. ”

Plus, venture capitalists like him won’t be deterred from opening their company coffers to start-ups, he argued during an appearance on CNBC. “They’re not going to suddenly turn their money into funds,” he said. He doubts that they will decide that they “can no longer justify investing”. Indeed, for the moment, the adventure is not doing too badly.

But Tim Draper, another VC luminary, takes the opposite point of view. The Biden plan could “kill the golden goose that is Silicon Valley,” he told the commercial television station. One of the first backers of Skype, Tesla and Twitter, he said that “higher taxes will reduce the motivation of people” who want to start a business.

All this is of great interest to pension funds, even if they do not pay taxes. The concern stems from the fact that global allocations from pension schemes to venture capital edged up to an average of 7% of portfolios last year, up from 6.2% in 2017, according to data from Preqin.

Meanwhile, the Business Roundtable, made up of top business leaders, announced a poll showing that 98% of 178 CEOs believe that increasing the corporate tax rate from 21% to 28% would have a moderately adverse effect. to severe on the competitiveness of their company.

For investors, the Biden program for capitalization gains would have a significant effect on their returns. His plan calls for increasing the tax rate on long-term capital gains to 39.6% from 20% for Americans with annual incomes of more than $ 1 million. On top of that, there is already a net investment income tax of 3.8% which would raise the maximum rate to 43.4%.

The president’s proposal to eliminate preferential taxation on carried interest – the fees that general partners (GPs) receive from investment funds for VCs, private equity, etc. Now they are taxed at the lowest rate of capital gains. The White House’s backgrounder for the plan says this payment would be taxed as ordinary income. Patricof supported the removal of the focused interest preference.

The VC backbone was one of the early contributors to Biden’s 2020 presidential campaign and also served as a “consolidator,” meaning he gathered donations from other wealthy Democrat supporters.

At this point, many number calculators are making all kinds of projections for tax changes. UBS, for example, says its calculations show that tax increases on capitalization gains are not so consequential to market performance. The last such hike, in 2013 – a 10 percentage point increase in the tax rate, to 25% – did not stop stocks from soaring 30% for the year, according to the firm.

Nonetheless, the financial services sector stepped up its merger and acquisition (M&A) operations at brokerage houses and wealth advisers in the first quarter, anticipating higher levies on future capitalization gains, according to the report on capitalization. merger and acquisition transactions of the registered investment advisor (RIA) of Echelon Partners.

Related stories:

Why venture capital is doing so well

Don’t worry: a higher tax on cap gains won’t zap the market, says UBS

Maybe a Biden Cap Gains hike won’t bring down the stock market

Tags: Alan Patricof, Business Roundtable, capital gains, deferred interest, corporate tax rates, tax hikes, Tim Draper, venture capital



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