QSBS stands for Qualified Small Business Stock. QSBS is a powerful incentive that is meant to help investors get preferential tax treatment for investing in small businesses and earlier stage opportunities. The IRS classifies a Qualified Small Business as any U.S. C-corp with less than $50M in gross assets before and after a qualified financing.
If an investor acquires equity in a business that is under this threshold and holds those shares for at least 5 years then 100% of the capital gains up to $10M or 10 times the cost basis of your investment (whichever number is greater), those capital gain are excluded.
How does QSBS work with an SPV or a syndicated investment vehicle. You will want to check with the investment manager but at Syndicately, all of our syndicated vehicles are structured as pass-through vehicles so any QSBS treatment of the underlying equity acquired and held by the SPV is passed on the individual investors in that vehicle.
If you are unable to hold a QSBS equity for more than 5 years, you are still able to realize the special tax treatment and defer any capital gains if you re-invest the gains in another QSBS equity within 60 days of realizing the first investment.
Hopefully this gives you a quick overview of QSBS and how it comes into play when investing via syndicated investment vehicles.