Posts from United States

My friend and occasional AVC community member Steve Kane calls himself a member of the Far Center Party. As I watch the two parties and their defacto nominees gear up for another presidential election, I find myself wanting to tune out the whole thing.

I am socially liberal. I was thrilled when Obama recognized a gay couple's right to marriage.

I am fiscally conservative. Obamacare scares me.

I am not really comfortable in any political party. The social views of the Republican party are more frightening to me than the economic views of the Democratic party. So I hold my nose and vote Democratic most of the time. But that is less and less satisfying every day.

Living in NYC for the past ten years has been a joy. We have a mayor who is not hostage to any orthodoxy. A mayor who simply makes the most pragmatic and practical decision at the time given his various options. We have a mayor who epitomizes the values of the Far Center Party.

I believe Bloomberg would run for President if he thought he could win. And I believe he has done the math and the analysis and has concluded that he cannot. That has everything to do with how our two political parties control congress and the electoral college.

I was hopeful that something like Americans Elect would work. It did not.

Our country is hostage to the two political parties who control our electoral process. Those of us in the Far Center Party should figure out how to change that.

I was going through the board deck of our portfolio company Wattpad this morning. Wattpad is the leading writing/reading community on the web and mobile. Quantcast says over 7.5mm people visit their website each month. And Wattpad is one of the top free "Books" apps in both the iOS an Android apps stores.

Wattpad has a very large mobile user base around the world as a result of the sucess of its mobile apps. And so this slide on geographic distribution of its user base caught my attention:

The iOS user base for Wattpad is about 65% in North America. But Wattpad's Android user base is less than 50% in North America.

More notably is what is going on in Asia and Europe. 24% of Wattpad's Android users are in Asia versus 12% of their iOS users. And 19% of their Android users are in Europe vs 13% of their iOS users.

Some of this data may be representative of Wattpad's user base. Everything on Wattpad is free. Wattpad makes writing and reading books feel like writing and reading blogs. And Wattpad is big in places like Vietnam, Phillipines, and New Zealand. But it is also quite popular in the US, Spain, and the UK. It is a global reading and writing community.

In any case, it was quite interesting to me that in Wattpad's user base, the North American users skew toward iOS but the Asian and European users skew towards Android. I plan to look at more data from our portfolio on this. Could be a trend here that would be useful to understand.

Yesterday my partner Albert and I sat down with the people behind Americans Elect. For those that don't know, Americans Elect is an online third party movement. In their words, "Pick A President, Not A Party."

Here's how it works (in short):

They are going to get on the ballot in all 50 states this fall. They've already gotten on the ballot in many of the states.

They have created a website where anyone can choose to run and where candidates can be drafted. Here's the current roster of candidates.

Over the summer, they will conduct an online convention and a single candidate will be nominated to run on their ticket.

That's basically it.

There are a number of cool things about the online service they have built. You answer questions about issues and they build an online profile of you. Then they match you with candidates that share your views. If you want to try that out, go sign up and you will be taken through the questions in a few minutes. It's fun to see where you end up even if you have no intention of voting for a third party candidate.

I'm sure a lot of people think this is a nutty idea. But I don't. So many people bitch and moan that they don't like our current system. Yet the do nothing to change it. The people behind Americans Elect have done something about it. That's progress.

I'm wandering a bit on MBA Mondays right now. I don't have a strong view of where to take this thing next. So I'm just going to post about stuff I think people should understand until I find the next vein we can mine for a while.

Today, I'd like to talk about ordinary income vs capital gains. This is not tax advice. I am not a tax lawyer or a tax accountant. I hope both tax lawyers and tax accountants show up in the comments as this is important and complicated stuff.

When you think about the various ways you can make money, two ways predominate. You can provide services to others and get paid for those services. That is ordinary income. And you can invest in something; shares of stock, a building, a domain, and then sell it later for more. That is a capital gain.

The distinction is important, at least in the US, because these two kinds of income are taxed differently. Ordinary income is taxed at the full federal, state, and local tax rates. We live in NYC and according to our accountants, we pay a marginal fully loaded tax rate of 47.62%. That means we keep about half of the ordinary income the Gotham Gal and I generate.

Capital Gains are broken down into short term (less than one year) and long term (more than one year). Short term capital gains are taxed at ordinary income rates but long term capital gains are taxed at a much lower rate. According to our accountants, we pay a fully loaded tax rate of 27.62% on long term capital gains. That means we keep about 3/4 of the long term capital gains the Gotham Gal and I generate. That's a big difference.

It gets more complicated when you have ordinary losses and capital losses because you need to understand when and how losses and gains offset each other. The rules are complicated and ever changing and I've learned to consult my tax accountants whenever stuff like this turns up.

But the important point of this post and the one I want to bring home is not all wealth producing activity is treated equally in the eyes of the government. There is a strong bias to capital gains. I agree with that bias, not surprisingly, because I think we should have an incentive to recycle capital instead of putting it under a mattress.

If you think about wealth creation in the context of ordinary income vs capital gains, you'll quickly come to the conclusion that you can build wealth a lot more quickly with capital gains than you can with ordinary income because the tax load is so much lower. This is one of the many reasons I encourage people to think of entrepreneurship as a career. If you are a founder of a startup, your founders stock will qualify for long term capital gains if you structure it correctly when you set up the company. And when you go to the pay window (to borrrow one of my favorite JLM phrases), you will be sharing a lot less with the government and keeping a lot more.

To all the non US readers, I apologize in advance. This post is not directed at you.

To all the US based readers, do me a favor. Go vote today. I don't care if you are liberal, conservative, or a member of the far center party. What matters is you exercise your right to vote today.

I am going to vote on my way to work. I am going to checkin on foursquare and contribute to this cool foursquare app called I Voted.You do that by including the tag #ivoted in your checkin.

I am going to tweet out my vote. And if I see any problems in our polling place I am going to alert the city via Twitter as Mike Bloomberg suggests:

It's cool that Mayor Mike uses TweetDeck.

I plan to vote for Harry Wilson for Comptroller (Rep). All the other contests I get to vote on today are not even races, sadly. But even if every single race was not a contest, I would still go out and vote today. It's our obligation as citizens to elect our representatives.

I saw a line the other day that said "if you don't like what is going on in washington, change the people you are sending to washington". Same thing can be said about Albany and City Hall. Today is the day to stop complaining about our government and do something about it. I'm going to and I hope you all do too.

Related articles

• Foursquare unveils "I Voted" badge for the midterm elections (intomobile.com)
• Facebook Helps You Find Your Polling Place (mashable.com)
• Midterm Elections 2010 (twitter.com)

Last month congress passed and the President signed an $18bn jobs bill "providing tax breaks for businesses that hire previously unemployed
workers and extending funding for infrastructure and transportation
projects."

While I can't argue too much with the idea of using tax breaks to spur hiring and investing in infrastructure, I think smart immigration reform might be a better way to create jobs in this country. Tom Friedman agrees and in today's NY Times, he writes:

“Between 1980 and 2005, virtually all net new jobs created in the U.S.
were created by firms that were 5 years old or less,” said Litan. “That
is about 40 million jobs. That means the established firms created no
new net jobs during that period.”

and

“Roughly 25 percent of successful high-tech start-ups over the last
decade were founded or co-founded by immigrants,” said Litan. Think
Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla,
the India-born co-founder of Sun Microsystems.

It is not surprising that new companies are creating the jobs in this country. Most businesses don't last forever, they start, grow, hire, eventually get fat and happy, stagnate, and then fail or are sold off. Add to that assertion that technology is changing things and that companies based on older technologies are likely to suffer and decline, and you come to the obvious conclusion that new company formation is the key to job growth.

That second quote from Friedman's piece is about tech jobs, but I would bet that immigrant led business creation is not limited to tech companies. The "fat and happy" thing is unfortunately true about many US citizens. But immigrants are rarely "fat and happy" so they work hard, start businesses, hire employees, and build companies. That's the american way. To quote again from Friedman's piece:

What made America this incredible engine of prosperity? It was
immigration, plus free markets. Because we were so open to immigration
— and immigrants are by definition high-aspiring risk-takers, ready to
leave their native lands in search of greater opportunities — “we as a
country accumulated a disproportionate share of the world’s high-I.Q.
risk-takers.”

We need smart immigration reform in this country. We are not inviting many of the world's "high-IQ risk takers" to come to America any more. And worse, we are asking many of them to leave. That must change.

Regular readers of this blog know that I'm a big fan of the startup visa idea and have been working to get it made into law. That is a small, but important, part of the bigger challenge. We need comprehensive immigration reform in this country. We have always been open to immigration in this country. It is fundmental to what this country is. We cannot change our approach and expect to continue to have a prosperous country.