The arrogance of venture capital I wouldn't mind the venture capital tax break so much if investors would at least admit, as Fred Wilson has, that its indefensible; or, at the very least, concede their self-interest; or if venture capitalists, and their private equity cousins, would just stay silent. Advice which Bill Burnham would do well to follow. Burnham, an investor who also blogs, says the tax code should favor not just those who invest straight cash, "but also those who take real risk and invest their time and other intangibles ." This argument is wrong, and obnoxious, on so very many levels.

Put aside the obvious point that venture capitalists are already rewarded for their time, by carried interest and the management fee that they take whether or not a portfolio performs. For the sake of argument, let's accept Burnham's contention, than an investor's advice and work, early in a start-up's life, should count as some sort of sweat equity, and therefore subject to capital gains tax, rather than income tax, when the investment comes good.

By that same token, one could look at a doctor's income as the product of investment in a medical education; or a trader's bonus as the return on an investment idea, which might have germinated years before, or a salesperson's schmoozing as an investment in contacts which might only pay off in a purchase months or years later — maybe.


Why should other professionals, who also make investments of their time, and take risks, be subject to income tax at twice the rate that venture capitalists pay on their share of a fund's profits, the carried interest? For that matter, what about the working poor, who face risks as volatile as any venture capitalist's, and for whom the consequences of failure are way more painful?

The other defenders of the tax treatment of carried interest can by all means lobby. They can even try to dress up their tax breaks as a service to society. But Burnham, and any other spokespeople of the investment industry, should avoid flaunting quite so publicly such arrogance about their privileged economic role.