Why do Venture Capital Funds Burn Research and Development Deductions?
Venture capital funds form a separate corporation for each venture they support. The separate incorporation destroys much of the value that the funds could achieve from deducting f research and development costs incurred by the ventures. The resulting taxes are draconian, sometimes confiscatory. The article looks carefully at the justifications offered for chosen structures in the literature and by interviews of experts in the field, and concludes that none of the justifications work. The willingness of sophisticated funds to burn their R&D deductions is a serious anomaly. The continuing puzzle as to why the deduction-destroying structure is used makes it plausible that the fittest structures do not always inevitably survive.
