Synthetic Equity — Pros > Cons For Startups?

2 min read

In the US, limited liability corporations (LLCs) are a recent phenomenon — Wyoming pioneered them in 1977, the IRS issued comprehensive rules around their taxation in 1988, and by 1996 all 50 states had LLC statutes. LLCs are almost by definition a hybrid of corporations and partnerships, which comes with advantages (e.g., taxation) but also disadvantages (e.g., no way to issue options). And that’s where “synthetic equity” comes into play, as an increasingly common way for LLCs to compensate their employees. But before we can focus on that this article will start with some basic definitions. 1) Basic Definitions There…...

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Amit Garg I have been in Silicon Valley for 20 years -- at Samsung NEXT Ventures, running my own startup (as of May 2019 a series D that has raised $120M and valued at $450M), at Norwest Ventures, and doing product and analytics at Google. My academic training is BS in computer science and MS in biomedical informatics, both from Stanford, and MBA from Harvard. I speak natively 3 languages, live carbon-neutral, am a 70.3 Ironman finisher, and have built a hospital in rural India serving 100,000 people.