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
If you are talking of something that is as important as the regulation of the country, I would rather depend on something that is more comprehensive & authoritative than wikipedia. You continue to refute everything I say on the basis of a wikipedia entry and haven’t expressed even an iota of willingness to be referred to my sources.
Good interacting with you.
For starters, wikipedia is good enough. When you have to define basics to someone.
The accent was on “Vivek Paul” , not the brand of firm.
If you think wikipedia is the most comprehensive resource for this topic, I really can’t do much. You don’t even want to wait for me to post a couple of links to see what I am referring to…
Incidentally, Texas Pacific is a PE firm, not a VC firm. Ask any LP in the US.
You say –
*Note that public equities (to refer to the example that you mention – Alliance Capital) is different and does NOT form part of the “Alternative Investments.” *
I quote wikipedia entry being the most basic that I could find –
“The Alternative Investments Market (AIM) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the Main Market. The AIM was launched in 1995 and has raised almost £24 billion for more than 2,200 companies.”
Note that the difference is only *flexible regulatory system* and NOT restricted to Priave Equity as you seem to think.
Public Equity just means listed securities owned by public ( unaccredited investors with no minimum networth restrictions). Alternative Investments INCLUDE public equity, besides private equity and hedge funds.
I repeat my argument, VC investments are 100% strategic and non-speculative in nature, calls for significant mentoring and incubation ( as is absent in PE ) and run by people who are veterans in the business if not entrepreneurs themselves ( a la Vivek Paul in Texas Pacific ) than weakly regulated, speculative PE / Hedge Fund investments managed by Fund Managers.
How else can I help ?
VC is actually a subsegment of Private Equity (because both are equity investments in private companies). University endowmnets at Yale/ Harvard and California’s state pension funds (Calpers), all widely regarded as possibly the most sophicated / experienced Limited Partners, treat private equity as “Alternative Investments”, allocating around 7% of their multi-billion dollar portoflios to this asset class. I’ll forward you some articles that talk of investment strategies for these LPs and how they treat all forms of Private Equity (including VC) as a single asset class.
Note that public equities (to refer to the example that you mention – Alliance Capital) is different and does NOT form part of the “Alternative Investments.”