OPPORTUNITY ZONES UPDATES
1. The First Venture Capital Opportunity Zone Fund
By Jimmy Atkinson 09 Oct 2019
It’s been nearly six months since the IRS issued its second tranche of regulatory guidance on Qualified Opportunity Funds.
How are business Opportunity Zone funds proceeding?
Brian Phillips is managing partner of The Pearl Fund, the first Opportunity Zone fund to focus exclusively on business, using a venture capital model.
Industry Spotlight: The Pearl Fund
Based in New York City and Scranton, PA, The Pearl Fund is the first Opportunity Zone fund focused on delivering venture capital to early-stage high-potential businesses primarily in the tech sector.
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Featured on This Episode
- Brian Phillips on LinkedIn
- The Pearl Fund
- Novogradac
- Forbes: What Investors Need To Know About The ‘Three Waves’ Of Opportunity Zones
- Goldman Sachs 10,000 Women Initiative
- Brooklyn Navy Yard
- Section 1202
- New York Times: How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich
- Medium: Are Opportunity Zones Nothing But a Tax Break for the Rich?
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" ... when you think about real estate, you know, real estate deals are good deals that they’re putting together, you might get a 2x return, have a big home run, you get a three or very unusual of four x.
With startup investing, particularly what we’re looking at, we’re looking at minimum of a 10x return for these companies. And many have the potential to be much greater than that, 50 to 100x. So it has the potential for much, much greater returns than you can ever get financially with real estate, but also an impact. Because in construction, you have a lot of good jobs that happen, but many of them are temporary jobs. And once the buildings are done and built to the properties done, you may have a few jobs in terms of maintenance and whatnot, but that’s it. What we do is we look for small companies that are 2 or 3 people within a year, they should be 30 to 50, and in 2 or 3 years, the ones that make it are 200 to 300, maybe 500 people, those are long-term, well paying jobs that are definitely gonna have a much more significant return in terms of impact in those Opportunity Zones...
" ... when you think about real estate, you know, real estate deals are good deals that they’re putting together, you might get a 2x return, have a big home run, you get a three or very unusual of four x.
With startup investing, particularly what we’re looking at, we’re looking at minimum of a 10x return for these companies. And many have the potential to be much greater than that, 50 to 100x. So it has the potential for much, much greater returns than you can ever get financially with real estate, but also an impact. Because in construction, you have a lot of good jobs that happen, but many of them are temporary jobs. And once the buildings are done and built to the properties done, you may have a few jobs in terms of maintenance and whatnot, but that’s it. What we do is we look for small companies that are 2 or 3 people within a year, they should be 30 to 50, and in 2 or 3 years, the ones that make it are 200 to 300, maybe 500 people, those are long-term, well paying jobs that are definitely gonna have a much more significant return in terms of impact in those Opportunity Zones...
The deferral of the original capital gains is nice, the reduction in your capital gains liability by 10% or 15%, depending on your holding period is nice, but the big one is the exclusion on the back end and that’s where you want those big returns if you have, you know, a 1.5X or a 2X return on a real estate investment, that’s great. But you know, and you’re saving a little bit on taxes, but imagine that the capital gains tax savings you would have on an investment that goes 10X or even 100X in a business model.
...Obviously, it’s riskier. Your real estate investment is not likely to go to zero but a business investment could. [inaudible 00:08:52]
. . aside from just plain Vanilla Real Estate deals that have seemed to be the first wave that was getting done. I kind of look at this as the second wave. Can you talk about that a little more, talk about the OZ business movement that you foresee coming, what’s that gonna look like?
About the Opportunity Zones PodcastHosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
Episode Highlights
- Advantages and disadvantages to being a first mover in Opportunity Zone business investing.
- Why business investing may be the best use case for Opportunity Zone investment, both in terms of investment return and economic impact.
- Brian’s response to the August 31 New York Times article that was critical of the Opportunity Zone incentive.
- The importance of diversification and balancing an investment portfolio between both business and real estate.
- The coming Opportunity Zone business investment movement, or “second wave” of Opportunity Zone investing.
- Best practices for structuring, capital raising, and timing Opportunity Zone multi-asset business funds.
- The challenges that the Opportunity Zone tax incentive pose for venture capital investing.
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