Dilution vs. Risk taking: Capital gains taxes and entrepreneurs

Yeah I'm in favor of leverage == taxable event. I think the meaningful difference between leveraged and unleveraged capital gains is that when you take a loan, you access liquidity via your ownership in the asset. If you had gotten a dividend, that would have been taxable. A loan with a stock backing it isn't the same thing, but it does have a somewhat similar effect.

The taxes would be refundable.

Especially if it is illiquid

I have worked about half time over three decades on a problem which I recently solved and am developing for a new venture. "Simple" conceptual solution - which took a long trail of reframing to get to. The complete solution is a layered series (actually a cycle) of partial solutions. Each partial solution but one from fields I never expected to be involved. Still taking a lot of work to implement well, but this is the "easy" part.

Getting taxed on any increases in value early would feel very unfair. I have already put in so much value, for nothing in liquid valuation so far, that things would have to go pretty well to compare equitably with what could have been expected if I had accrued half-time earnings, continuously saved and invested in entirety for three decades.

Further worries: If I don't want to accept any venture capital, and at least for the foreseeable future bootstrap, would I somehow be forced into needing to liquidate ownership based on some accrued wealth rule anyway?

Hopefully not.

But if capital raises are the trigger for accrued wealth taxes, even a small raise after bootstrapped success, gets ugly too. Imagine raising capital after achieving bootstrapped success, by selling 1%, only to have to pay taxes on 99% of the company's new valuation! That would create a severe disincentive to take any capital ever, after bootstrapped success.

Some kind of hybrid approach might work. Where the only triggers of taxes involved were actual capital sales, with the taxation amount proportional both to the new valuation, and the percentage of total valuation sold. I.e. On first capital raise, for 1% of the companies ownership, the zero-to-new valuation V would be taxed at a maximum of 1% of V. So 2% would need to be sold. (1% from the company for its coffers, 1% from owner for taxes.)

That would be doubling a raise to pay taxes, but far better than a multiplier of 26 times the desired raise. (Where 1% is raised for the company, matched by an additional sale of (for instance) 25% of owners shares, to pay the owners taxes on the suddenly valuable 99%).

Small sales shouldn't incur massive consequences.

It’s a useful lagging indicator. Most here still think they have a shot at being the next unicorn like in the ZIRP era.