> It is basically forcing them to dilute more, which is better for them on average because the shares expire worthless so often anyway.
Well no, because VCs might not give you money to buy chunks of the business as they want the money to go into the business.
An unrealized capital gains tax forces VCs to give founders money during funding rounds to cover taxes, money that is refunded to the founder in the event of the business going under.
This means you no longer lose everything in an unsuccessful exit, because you get a refund on the capital gains that you didn't end up having.
This is assuming no reaction from people to this tax going into effect. And that's of course stupid. This is trivial to game and for that reason it will rapidly turn into a money pit for the tax agency.
After all, it's real easy for entrepreneurs to be unsuccessful. You get some nonzero valuation by having a friend bid or give some investment and thereby set the valuation, and then you go bankrupt.
The money comes from investors, goes to the tax agency, and comes back again. (Or maybe it doesn’t if it’s just a credit towards future taxes?)
This scheme depends on winning the trust of investors and then defrauding them. Sure, it can be done, but there are other ways. The simplest would be paying yourself a higher salary.
Presumably, investors are aware of the risks and are willing to take them.
Well no, because VCs might not give you money to buy chunks of the business as they want the money to go into the business.
An unrealized capital gains tax forces VCs to give founders money during funding rounds to cover taxes, money that is refunded to the founder in the event of the business going under.
This means you no longer lose everything in an unsuccessful exit, because you get a refund on the capital gains that you didn't end up having.