“I had to regulate”
Migos, “Fight Night“
As a startup investor and board member of the NVCA, the venture community’s preeminent trade association, I am deeply committed to supporting the entrepreneurial ecosystem. Entrepreneurs and emerging growth companies are not only significant sources of innovation, they also drive U.S. job creation and economic growth.
As we enter a new presidential administration, however, we may see legislation changes that would greatly weaken the entrepreneurial ecosystem. Therefore, it is incumbent on the business and startup community to monitor several key issues and take action.
Carried interest is one major policy that may be threatened under the new administration. As I wrote in an editorial on VentureBeat prior to the election, both Clinton and Trump have proposed eliminating the current capital gains tax treatment of carried interest, which taxes VCs at 20 percent rather than 40 percent of successful startup investments. The long-term gain classification is very fitting when you consider that it takes five to 10 years to see startup returns––and that’s for the tiny percentage of startups that actually last that long.
Ironically, although held out as a tax loophole for hedge funds, increasing taxes on carried interest will have the harshest impact on those who are part of the virtuous economic cycle of entrepreneurship. Venture capital funds would shrink and become even more concentrated than today, leading to a decline in new businesses, regional economic opportunities, employment, GDP, and economic growth.
In addition to carried interest, the NVCA and I are also monitoring the following areas that directly impact the entrepreneurial ecosystem:
– Immigration: the chances of immigration reform passing have plummeted with Trump’s election. We may even see increased roadblocks for immigration applicants. The NVCA and I will continue to argue for creation of the Startup Visa, which would create a new visa category for immigrant entrepreneurs who contribute to new jobs in the U.S. instead of overseas.
– Qualified Small Business Stock Rules (QSBS): comprehensive tax reform could see repeal of QSBS rules in order to use the revenue to pay for lower rates.
– Proactive Tax Proposals: if a major tax bill surfaces, it would be an opportunity to include tax changes that benefit the ecosystem. These include a safe harbor for startup R&D investments, an expansion of the R&D credit so startups can access its benefits, and improvements to QSBS.
– Net Neutrality: it’s likely that the FCC’s net neutrality rules will be overturned by Trump’s appointees or by Congressional action.
– Regulatory: We are not likely to see many new regulations, and we may even see more opportunities to decrease regulatory burdens on startups and VCs where appropriate.
The NVCA and I are working assiduously to advocate on behalf of the entrepreneurial community. We’re meeting regularly with members of Congress, both locally and on Capitol Hill, to discuss solutions. Your support would help. Join the NVCA if you’re a VC or get involved with the organization if you’re an entrepreneur. Call or write to your representative or senator. Educate them on what’s at stake. Encourage them to build a more nurturing environment for entrepreneurship. At a minimum, share this article with everyone in your network. There is strength in numbers.