Corporate Tax Havens and Venture Capital Investment

摘要

VC firms are always concerned about information asymmetry and capital gains tax. These issues influence venture performance and VC firms' returns; therefore, they are decisive and vital. In this study, we asked how VC firms manage information asymmetry problems and avoid capital gains tax. Can these two problems be solved simultaneously? In this article, we observed a unique solution that does just that. It is widely accepted in the VC literature that financing ventures through convertible preference equity is optimal. Convertible preference equity provides many benefits to secure VC investments that otherwise are not available. We took this insight from the literature and considered how this fits in routing VC investments through offshore tax havens. Tax treaties between member countries provide an excellent opportunity for VC firms to route investments through tax havens. Financing a venture using convertible preference equity and routing the investments through tax havens will help VC firms take advantage of tax treaties, and this strategy will also help to deal with problems of information asymmetry.