VCs May Lose Privileged Tax Position — Poor Babies!

The House today voted 241-181 in favor of the Tax Extenders Act of 2009 that would raise tax rates on “carried interest” earned by investment managers – including venture firms – to ordinary income rates (~35%), from a lower capital gains rate (15%). The bill now moves to the Senate.

In the WSJ, Terry McGuire has a pathetic set of whining gibberish in opposition to this move:

“We give money to entrepreneurs – they take our money, they build a company and when they’re successful, their equity is treated as capital gains,” McGuire said. “We do the exact same thing: We take people’s money and we invest it in companies. We spend countless hours, days, weeks and months with these companies, we sit on their boards, we help build their companies…and then we’re to be treated from a different perspective? You have a misalignment of interests.

“So on a fairness doctrine, it’s just not fair,” McGuire said, speaking of the entire VC industry. “If I’m going to spend nine years building a company out of MIT, and my only equity form is carry, I think it should be treated like a long-term investment. I’ve been in the board meetings, I’ve been on the recruiting calls. Heck, maybe I’ve actually taken a role as a temporary CFO or CEO, and I should be treated accordingly.”

Delusional or what?? VCs don’t build companies. Entrepreneurs do. Sitting in board meetings is one thing, actually running companies is quite another.

The guy goes on to say:

“There will be a brain drain,” McGuire said. “There will be people that will leave the industry who say, ‘Geez I can go into venture and wait eight, nine, 10 years to get some equity return and taxed as ordinary income, or I can go to hedge or other places where I can make money faster.’ And the best and brightest who are expecting to help partner with entrepreneurs to build this innovation economy, will be lost.”

This is embarrassing! There are at least 10 times more VCs in the industry than there should be, anyway. The industry is bloated beyond belief, with management fee scams rampant. What is this nonsense?

Grow up, guys!