Q&A with Jeff Pomeranz of Right Side Capital Management

We have a great track record. The goal of RSCM funds is to consistently deliver a 3 - 5x+ net return multiples to our investors. Our first fund, RSCM Fund I, is currently at a 6.2x net multiple with a 26% net IRR, and our Funds II & III are trending ahead of where Fund I was at the same point in their lifecycles. All RSCM funds are outperforming the VC industry benchmarks while taking substantially less risk than traditional VC funds.

Our strategy is optimized for tax efficiency. Under current tax rules, our funds are expected to produce close to zero federal tax liability (and in 45 of 50 states) over the life of the funds by taking advantage of two very impactful, but often overlooked, tax incentives available to very early investors. The first is IRS Rule 1202, which allows the potential for tax free gains for investors in Qualified Small Business Stock (QSBS). The second is Rule 1244, which provides more favorable tax treatment on losses for extremely early investors in QSBS stock. We expect the vast majority of our funds’ gains to qualify for the QSBS exemption (section 1202), and most losses count as ordinary losses instead of capital losses (Section 1244).

The first reason is for the high returns. Returns in the tech sector are always higher the earlier you go. The second reason is the lack of competition. We invest at an earlier stage than other professional investors, even earlier than seed and pre-seed VC firms. As a result, we don’t have to compete with other professional investors for deals. We have an almost unlimited number of deals to choose from because check sizes at this stage are too small for the traditional VC industry to address.