The issue of how to tax carried interest, the profit sharing interests that VCs, Private Equity firms, and Hedge Funds receive as compensation for generating returns to their investors, is in the news again.

This time it is not a debate at the Federal level, but at the state level. There are carried interest taxation bills under discussion in California, Illinois, Maryland, New Jersey, New York,Rhode Island, and possibly other states that I am not aware of.

My view on this issue is simple and I’ve stated here publicly and regulary since mid 2007.

If you are being paid a fee for managing other people’s money and have no capital at risk on the carried interest, I don’t understand how it can be considered a capital gain.

It may be good economic policy to incentivize people to manage other people’s money and maybe there should be some tax break for doing so. That is a different conversation in my view. Though I don’t buy that one either.

But capital gains tax rates should only be available to those who put their own capital at risk. Many VCs do that in their funds. The partners at USV make up a sizeable portion of our funds. We should and do get capital gains treatment on those investments.

But we also get capital gains treatment on the carried interest and I’ve never understood why. I think it’s wrong.

Finally, because I’ve written these thoughts here before, I know that some will say “well then you should be sticking to your principles and paying ordinary income rates on all of that carry you have received over the years.”

I don’t think that is right either. If the government sets the rules, and everybody else is playing by them, I don’t think it makes sense to play by different rules. I do think it makes sense to explain why you think the rules are wrong. Which is what I am doing here.

A few months ago, the Gotham Gal asked me to disconnect the Amazon Alexa and Google Home devices we have in our family room.

I complied with that request.

This is what the two devices look like now:

At some point, I will remove them and either do something else with them or dispose of them.

If anyone in our house is uncomfortable with devices listening to our conversations, I don’t want to subject them to that.

I do plan to go look at our voice recording history and delete anything that seems off limits.

Here is how you do that with Google Home and Amazon Alexa.

This raises a broader question about these voice devices which is whether the value they offer outweighs the creepiness they create in the home.

For us, the answer has been a resounding no, as evidenced by that photograph.

So the news over the weekend is that Microsoft is buying GitHub. Many companies and developers are thinking “do I want my source code hosted on a service owned by Microsoft?”

Fortunately, the protocol that GitHub is built on, Git, is open source and there are other Git hosts, like GitLab.

There are also a number of proprietary Git solutions offered by companies like Atlassian and BitBucket.

Moving your source code repositories from GitHub to GitLab or somewhere else is not a simple thing, but it can be done. Kind of like moving your email from Outlook to Gmail.

Lock-in is a bitch. And everyone who has ever been locked into a shitty piece of software over the years knows, there is often no easy way out.

Software built on decentralized protocols offers a different and better way. You can move your data out if you don’t like where things are going. And that is what some developers are doing right now with GitHub.

In the blog post announcing changes at SV Angel last week, the SV Angel partners wrote:

The amount of money raised in seed rounds has doubled and valuations have increased significantly.

I thought I’d go back over the last three USV funds and see what I could learn about the market from our experience.

Since raising our third early-stage fund in 2012, we have led or co-led 16 seed rounds, 31 Srs A rounds, and 8 Srs B rounds, for a total of 55 new USV portfolio companies over the last six years.

I put all of that data into a google sheet this morning and this is what I learned:

The average pre-money valuation for a seed round has gone from $5-10mm in the 2012 time frame to $10-15mm in the 2017 time frame and the average amount raised in seed rounds has gone from $2.5mm in the 2012 time frame to over $4mm in the 2017 time frame.

The average pre-money valuation for a Srs A round has gone from $10-15mm in the 2012 time frame to $22-$27mm in the 2017 time frame and the average amount raised in Srs A rounds has not changed very much. It still averages around $5-7mm.

We have not been leading or co-leading many Srs B rounds in the last three years so my data on that market is not good enough to come to any conclusions there.

USV invests in North America and Europe and our largest density is in NYC and the Bay Area. This data is averaged across all of those markets and so it could be off significantly for a specific market. We find the Bay Area to be the most expensive place to invest and Europe to be the least expensive.

I think the comment made by the SV Angel partners is correct, at least directionally so. What this means for returns for angel and early-stage investors remains to be seen. Right now the angel and VC sector is producing great returns, but those are driven off of investments made in the 2005-2010 era for the most part and we have yet to see what the returns for the 2010-2015 cohort will deliver and we are a long way from knowing how the 2015-2020 era will turn out.

A few weeks ago, our portfolio company Coinbase announced that they had acquired a company called Paradex, which operates a 0x relay (in other words a decentralized exchange). If you want to know more about what all of that means, here is a video from Token Summit where it is explained in less than five minutes.

I saw this project this morning and backed it right away.

I’m a sucker for anything that is a fun and engaging way for kids to learn.

I don’t have much to say today that I can say.

So I thought I’d do a little link blogging instead.

Here are some interesting things I read online today:

1/ Tim Wu on a legal framework called “fiduciary duty” in lieu of a US version of GDPR

2/ Laura Desmond on why 50% of young adults use ad blockers as a form of civil disobedience

3/ My friend Tom Evslin on why he voted for Trump and why he’d like a better option next time

4/ Mary Meeker’s Internet Trends report (not much new in there but still worth a skim)

5/ And in the interest of finishing this off with some absurdity, Monster Headphones plans a $300mm ICO

I hope there is something of interest in there for all of you. I am off to start my day.

I realize that immigration is the third rail of our political discourse right now.

But one thing should not be controversial.

Entrepreneurs exist all over the world and if they want to come to the US, hire our citizens, and build large economic engines here in the US, we should welcome them with open arms.

I can’t imagine anyone disagreeing with that logic. I am sure someone will. But I still can’t imagine it.

So when I read this yesterday, that the Dept of Homeland Security wants to end the International Entrepreneur Rule, it made me angry.

This is economic suicide.

In service of what?

The world has all-but stopped making new tech unicorns. pic.twitter.com/rppXVg5hWX

— Jim Edwards (@Jim_Edwards) May 29, 2018

21 new ones on this list here https://t.co/eZRoyNfACZ WSJ may not know where to look these days

— Fred Wilson (@fredwilson) May 29, 2018