I recall a conversation with Alok on this topic, on the day the budget was presented. The Economic Times has an article today that outlines the issue, but presents no clear resolution one way or another. Would some of the knowledgable folks here comment?
The worst isn’t over for venture capital funds (VCFs). The million-dollar question before funds now is the rate at which their earnings will be taxed. Will it be 10% that stock investors pay on “capital gains” or, will the IT assessing officer use his discretion and treat the earnings as “business income” and slap a 30% tax?
There is no straight answer to this: while one may argue that VCFs buy stocks with the clear purpose to invest and hold on for a few years, it is also perceived that trusts are set up for the “business of investment” and hence what they earn is business income.
More so, since VCFs invest in unlisted stocks, where long-term gains are also taxed. A 30% tax could deal a body blow to VCFs, making them significantly less attractive as invesment vehicles. The tricky issue has cropped up even as funds are finding it difficult to come to terms with the new proposal that brings most VCFs under the tax net.
- Mary Meeker’s 2014 Internet Trends report - May 28, 2014
- Andreessen-Horowitz raises $1.5B for its new fund - February 1, 2012
- WestBridge launches India “evergreen” fund - November 15, 2011
I had used Ted’s peripheral comment only to drive home the existence of `Franchise’ model to as you had disagreed earlier. It’s strange that after rejecting the existence of `Franchise’ model and later admitting it, you find nothing to support or disprove in that article. May be you’ve lost the thread altogether. Like all published features of K@W, that too was meant for discerning readers making allowance for inferences. You obviously have one after the first read, may be you should re-read it in right perspective to establish connects.
Ted was engaged in a more substantive broad based debate in there and it’s a bit presumptuous of anyone to expect them to spend time on basics (but you don’t seem to give much credit to KPCB anyway 🙂 – and I can appreciate it as a matter of your opinion. I have a lot of respects for them because I look at their achievements – and since I look at learning as a perpetual process, have the courage and humility (to look up to not just KPCB -anyone who’s well endowed ) to learn as much as I can.
Using debates to help fill the gaps in knowledge, is indeed commendable. A good deal of learning happens by looking up old bookmarks, familiarizing with revisionist POVs or at least the assumption of conceit within is mercilessly demolished. Fatigue catches up when all there’s to deal with is just some hollow denials, rolodex and anecdotes that are clearly out of whack and do not reflect in the clarity of concept aired or the written word. When stacked up against pure conceit that disregards stalwarts and reconciles smugly what one knows is the ultimate or worse, enough – it’s time to exchange pleasantries.
Even as I fail to understand what exactly are your thoughts, I deeply respect your right to disagree.
Thanks for your time.
yes, he talks of the franchise model, but does he anywhere say that it is closer to PE than what typical VCs have done, something that is the basis of your argument?
I don’t see anything in Ted’s comments to support or disprove the discussion we are having. He actually talks of the franchise model as the the right model for VCs expanding into international opportunuties, as that is a natural extension of the tight-knit fashion in which VCs have worked so far, whereas you think that franchise model is very different from the tight-knit approach that VCs have practiced so far.
Ted has no views on the impact on risk / return profile that the franchise model may have.
Just because an article mentions a key word that you use does not make it pertinent to the discussion at hand.
Incidentally, I know both Andrew & Ted, and have actually had discussions with Ted on the VC model for international expansion. KPCB may be the most reputed VC firm, but not sure if they have been as aggressive about international expansion as numerous other VC firms.
Ted Schlein, a partner with KPCB has recently in a K@W interview has expressed views similar to the one we are discussing.
I’ve attached it since you say ” Lot of points you mention (franchise model, risk/ return profile) are actually not true” – It’s a long one, buy you’ll find the `untruth’ somewhere towards the end.
http://www.knowledgeatwharton.com.cn/index.cfm?fa=viewfeature&articleid=1585&languageid=1
Let’s just simply agree to disagree. This has gotten so convuluted that I don’t even know where to begin this response. And I would like to respond to your comments about me not knowing how much I understand but I’ll let that pass. Having known the VC / PE industry for close to seven years, a few as an entrepreneur and the rest as a VC / PE professional, both in India & US, I do know the industry well enough to say that lot of points you mention (franchise model, risk/ return profile) are actually not true, but you obviously have a similar opinion on my comments, so let’s just can this here.
Ashish,
I think you are actually understanding it better than you realize. Especially when you say “an asset class is not defined by the person who runs it, but by the risk / return profile.”
Today, most of the foreign VC firms ( say KPCB) runs on a Franchisee model in emerging markets like India, China, Latin America or Eastern Europe. They don’t go there personally to screen, select, invest and advise portfolio companies – instead recruit local people to run it independently. That way, the principals lose a lot of sleep since their brand gets diluted in that it is influenced by the quality of strategic advise offered by the local franchisee. This vitiates the conventional `risk/return’ profile that you mention – as the quality of advise varies significantly from what a John Doerr or Brook Byers with global perspective would have offered.
Now you tell me, this kinda’ Franchise model – is it not closer to PE than conventional VC model, which is a closed, tight organization that has a better insight into the portfolio firm than a pureplay financial investor ?
If you understand this elementary (not so) subtlety, rest of your misgivings dispel themselves.