Paul Graham’s Second Inequality Essay is Only Slightly Better. Here’s What’s Still Wrong With it.
Rick Webb

Rick, I love this article and your original open letter. Here’s my favorite part, which can only be set up by your perfect blend of reason+compassion:

“My strong desire is for Graham to just come out with it and write the essay he’s really thinking: “if the wind is blowing on these tax raises and we have to start deciding what are good causes and bad causes of income inequality, I advocate to put all VC returns into the good causes bucket so we can keep our lower capital gains rate. Not just good old fashioned founder/early employee equity returns and angel investment returns for individuals, but the fees and carry that venture firms make their living off of, and (maybe? I don’t know how he feels on this one) the returns the LPs make as well. Because all of this money creates jobs.”
It’s not a completely crazy argument, but he seems scared to make it outright. I’d love to hear it, debate it, talk about it.”

As a startup founder four times over, an angel investor dozens of times over, an LP and a GP — not to mention someone who has captured a unicorn once and gotten rich and broke twice — my recommendation for a more just, resilient and wealthy society would be to:

  1. Have zero tax on paydays for founders, advisors or investors — if derived from equity acquired in the early-stages (up through Series A), which is where the real risk is.
  2. Also give a pass on all VC carry (not mgmt fees though) for investments where the VC led an early stage round. Most of their profits come from later stage follow-on, but they should be incentivized to make more bets early.
  3. Tax everything else progressively as personal income/gains (i.e. no corporate loopholes).

I’m sure there are other ways of slicing it to achieve similar goals, but your point is loud, clear and cogent: successful VCs and founders (especially of the rich, white male variety) tend to believe they hit home runs, not recognizing that they started on third base relative to most of society. The income inequality debate should really focus on how we can get more batters on base, assuming they want to play the game.