The Qualified Small Business Stock (QSBS) program has morphed from an entrepreneurial incentive to a massive tax break, reports the New York Times. The provision allows early investors in startups to avoid taxes on at least $10M in future profits or 10x the value of the initial shares purchased. It was intended to support small businesses, but founders are able to avoid later taxes by giving shares to friends or relatives with no stake in the company. More: - The strategy is currently legal and goes by the name "stacking" because the tax breaks are then compounded by being stacked on one another.
- Another strategy is known as "packing." This entails inflating the value of the initial investment by transferring assets to another company with an additional valuation scheme.
- A third tactic is to place assets in multiple trusts for the same relatives and friends, thereby increasing their values and the subsequent tax relief.
- Sources specifically noted a16z, as well as early investors and founders of Uber, Lyft, Airbnb, Zoom, Pinterest, and DoorDash, as having taken advantage of this loophole.
- Manoj Viswanathan, director of the Center on Tax Law at UC Hastings, estimated the tax break would cost the government at least $60B in the next ten years.
- Initially backed by Senator Dale Bumpers, with the support of the National Venture Capital Association, QSBS was initially slow to gain traction among investors.
- It gained popularity as a way for entrepreneurs to use gifted tax credits as a form of estate planning. Now, with the explosion of tech IPOs meaning that tax bills are piling up, tax lawyers have redoubled their efforts to help top founders avoid the hefty charges.
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 PitchBook predicts that at least one-quarter of all SPACs formed in 2020 will not manage to find a target within the two-year deadline. Of the 230 vehicles that sprouted up last year, 84 (36.5%) have yet to seal a deal. That expectation takes into account the 508 new SPACs that came into existence in 2021, which drive up competition for good acquisitions. More: - One sector of SPAC activity that the analysts expect to grow is in the biotech segment.
- SPACs are particularly appealing for biotech companies because drug revenue forecasting is permitted during the business combination process. SPACs can also minimize the dilution that would occur during the IPO process when biotech companies typically raise a crossover financing.
Other predictions: - At least three VC firms will register as registered investment advisors (RIAs), giving them the ability to maintain stakes in their portfolio companies that have gone public. Normally, there is a 20% threshold for a fund’s holdings in non-qualifying investments.
- A further incentive comes from crypto investing, which has grown in appeal for traditional VCs.
- Current VC firms turned RIAs include Sequoia, a16z, Thrive Capital, General Catalyst, Foundry Group, and Touchdown Ventures.
- Corporate VC will break records again with 1,500 active investors in the U.S.
- 1,400 corporate VCs already topped $100B in the country out of 2,600 deals in the first nine months of 2021.
- That will go in tandem with the top 10 regions in the U.S., each seeing at least 400 deals in the coming year.
- That figure has already been reached by the Bay Area, New York, Boston, and Los Angeles, but places like Philadelphia, Chicago, and Austin could meet this milestone much earlier than previously thought.
- While the U.S. market heats up, increased valuation will push investors to seek their returns elsewhere.
- Areas such as Latin America and Southeast Asia will become particularly appealing. The evidence from 2021 shows that macro headwinds, such as the conflict with China and the pandemic, have not managed to dampen U.S. investors’ appetite for placing bets abroad.
- Finally, if it can be believed, the exodus of companies from private to public markets will actually increase in 2022.
- There are over 700 private, VC-backed companies with valuations above the median public debut from 2021.
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Pune, India-based mobile-first credit card company OneCard raised a $75M Series C led by QED Fund. The round saw QED doubling down on the company after having co-led a $35M Series B funding together with Sequoia. More: - Sequoia also participated in the latest funding round, alongside INVOPPS FT21, Sarv Investments, Ocean View Investment, Matrix, and Hummingbird.
- The fresh funds came with a $722M valuation, resulting in a quadrupling of the company’s worth since its last funding round in April.
- OneCard offers users a virtual, cellphone-based credit card to build a credit score. It is active in 12 Indian cities.
- It competes with two other companies in India:
- Slice, which recently became a unicorn after a $220M round that brought its total funding to date to $291M.
- Uni, which recently raised the second-largest Series A round by an Indian startup history to bring its funding to date to $88.5M.
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 According to Crunchbase data, RA Capital Management and OrbiMed were the two most active biotech investors in 2021. RA took the top slot with a total of 60 investment rounds, while Orbimed was hot on its heels with 51 total deals. Both firms had comparable ratios of led rounds to rounds they only participated in. RA led 25 deals, and OrbiMed took the reins in 18. More: - While RA Capital was involved in nine more deals than Orbimed, its total funds deployed were not much higher.
- RA spread $6.1B across its 60 deals, compared with OrbiMed’s $6B, indicating that OrbiMed’s bets were substantially larger.
- Fidelity Management, which is not a specifically biotech/health-focused fund, nevertheless injected $5.8B into the sector across 31 deals.
- The arms race comes as $120B worth of VC dollars were poured into health and biotech startups globally in the first 11 months of 2021.
- Of that $120M, slightly over half ($65B) was pumped into companies specifically characterizing themselves as biotech companies.
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African startups raised a record $4B in 2021, a massive increase on the $1.5B in 2020 and a doubling of 2019’s $2B. The figure comes in much higher than most analysts expected. For example, AfricArena, a tech accelerator, predicted deal volume to come in between $2.25B and $2.8B. The continent saw several breakthrough moments: - Five new unicorns were minted.
- Four are fintech-focused: Flutterwave, OPay, Wave, and Chipper Cash. The last is tech talent marketplace Andela.
- These companies were helped by a maturing market in the Big Four countries: Nigeria, South Africa, Egypt, and Kenya.
- Several startups from these countries have entered public markets, while many more have been acquired by foreign and local companies.
- A further boost came from international investors like Berlin-based VC firm Target Global and behemoth Tiger Global, in addition to Dragoneer, FTX, Fidelity, SVB Capital, and Sam Altman, getting involved in funding rounds across all stages.
- Increasing valuations went hand in hand with a spurt of mega-rounds: 10 startups generated a total of 11 rounds of $100M or more.
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- VLP Therapeutics raised $21M Series A from Nobelpharma, MUFG Bank, Sojitz Corporation, MIYAKO Capital, Mr. Robert G. Hisaoka, SK Impact Fund. The company develops a cancer treatment vaccine as well as prophylactic vaccines against malaria, dengue, etc.
- Defi interoperable tools protocol developer Umee raised $32M by selling its UMEE tokens on Coinlist.
- Voyant, a producer of tiny lidar chips, raised $15.4M Series A led by UP.Partners, with participation from LDV Capital and Contour Ventures. The company will make 200 units for partners in 2022 and will start taking commercial orders in 2023.
- Almond Finance, a blockchain-based funds transferring service, raised $2M Seed from Morningside Group. The Boston and Singapore-based company is targeting B2B transfers with an international emphasis.
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 |  | Inside VC's writer/curator Stephen currently lives in Berlin and is pursuing a Master's degree in philosophy. He otherwise spends his time trying his hand at recipes from India and Southeast Asia, escaping it all at the kickboxing gym, and offending aural sensibilities with his band. |  | | Editor | Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford. | |
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