Q&A with Jeff Pomeranz of Right Side Capital Management
Managing Director
Principal Series:
Right Side Capital Management (‘RSCM’), based in San Francisco, is one of the most innovative and active pre-VC stage investment firms in North America. The firm has invested in over 1,900 technology startups since 2012 across eight funds.
RSCM invests in capital-efficient technology companies that are raising smaller round sizes, and at earlier stages, than what most professionally managed funds can access. RSCM believes that small round sizes in the pre-VC stage of technology development present much better return/risk ratios than the rest of the VC ecosystem. The lack of professional competition at this stage, due to the small round sizes, reduces competition for deals and keeps valuations low.
RSCM uses a data-driven selection process to identify optimal investments and build massively diversified portfolios. The investment process allows the principals to make substantially quicker yes/no investment decisions, which makes the firm popular with founders who will accept a lower valuation for saving them months of fundraising.
In addition to targeting 3 – 5x+ net investor returns, Right Side Capital funds are optimized for tax-efficiency. RSCM expects most investor gains in their funds to qualify for the Qualified Small Business Stock (QSBS) exclusion and therefore be free from federal taxes and in 45/50 states (IRS Rule 1202)
All RSCM Funds are currently on track to meet or exceed their performance goals. RSCM Fund I, which was launched in 2012, is at a 7.5x net multiple through Q1 2024, has a 27% net IRR, and has effectively produced an aggregate tax credit for its investors as the vast majority of the gains have been QSBS-qualified, therefore free from federal taxes.
Join us for a private Family Office Insights Webinar featuring Jeff Pomeranz and Curt Pabst of Right Side Capital Management, a pioneer in pre-VC stage technology investing. Jeff and his partners have worked together for over 14 years and have invested in over 1,900 startups. Right Side Capital has a proven track record of producing outsized returns with exceptionally low taxes.
August 15, 2024 at 2:15pm-3:15pm EST
RSVP & Confirmation Required
Investor Only Please!
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How is your track record?
The goal of RSCM funds is to consistently deliver a 3 - 5x+ net return multiples to our investors, regardless of macro environment. Our first fund, RSCM Fund I, is currently at 7.5x net multiple, 6.1x of which has been distributed, and has a 27% net IRR. All RSCM funds have handily beaten the Cambridge VC Index and are top quartile funds, regardless of vintage year.
What are the tax benefits to investors in RSCM Funds?
Our strategy is optimized for tax efficiency. Under current tax rules, we expect our funds 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 impactful, but often overlooked, tax incentives available to very early investors. The first is IRS Rule 1202, the Qualified Small Business Stock (QSBS) rule. QSBS qualified gains are free from federal taxes, as well as in 45 of 50 states. 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).
Why invest in tech startups at the pre-VC stage?
There are several benefits to investing at what we call the “pre-VC stage. 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. The amount of capital sought by companies at the Pre-VC stage, usually less than $500k rounds, is generally too small for venture capital firms to address. As a result, we don’t have to compete with other professional investors for deals. This lack of professional competition keeps our entry valuations low. Finally, investing very early and holding for 5+ years in a highly diversified portfolio captures the aforementioned QSBS tax benefits.
Jeff Pomeranz of Right Side Capital Management
Jeff Pomeranz is a Managing Director of Right Side Capital Management, LLC and has 28 years of experience in the financial services industry. Prior to co-founding Right Side Capital in 2012, Jeff served for seven years as Head of Alternative Investments for Legend Merchant Group, Inc., a financial services firm offering investment banking, brokerage & asset management services. Mr. Pomeranz previously spent eight years as a founder and President of Hotovec, Pomeranz & Co. LLC, a boutique technology research, investment bank & wealth management firm. Early in his career, Mr. Pomeranz was a Financial Consultant for Smith Barney providing wealth management services.
Mr. Pomeranz received his Bachelor’s degree from the University of Colorado.
Contact Jeff: jeff@rightsidecapital.com