The Wall Street Journal: Senate tax plan mostly favorable toward VC firms, tech startups

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The Senate’s passage of a proposed overhaul to the U.S. tax code caps a period of uncertainty for the tech industry, spurring a sigh of relief from venture-capital investors.

In the months leading up to the landmark bill, Silicon Valley was rife with uncertainty over how new provisions would treat partnership profits at venture firms and the taxation of employee stock options. Investors feared that changes to the carried-interest deduction, which is the roughly 20% share in the profits enjoyed by general partners of venture firms, would have weakened the incentives for taking risks on investment in private companies.

“Six months ago, there were a bunch of proposals that felt hostile to the entrepreneurial ecosystem and seemed targeted to harm the innovation economy — we seem to have avoided most of them,” said Venky Ganesan, managing director at Menlo Ventures and former chairman of the National Venture Capital Association.

Carried interest wasn’t the only thing at stake for Silicon Valley, as startup employees faced a potential tax on unvested stock options. Now lawmakers propose deferring taxes until a liquidity event such as if the startup gets acquired or holds an initial public offering.

An expanded version of this report appears on WSJ.com.

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