The Invisible Tax that Could Be Hosing Your Investment Returns

by | Jan 12, 2021

At a time when there is tons of chatter among investors about carried interest taxation, you may be surprised to hear…

There are two massive invisible taxes that many investor-backed companies are subject to… that no one is talking about.

And they could be costing your portfolio companies hundreds of thousands, even millions. 

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☑️ THE LOST PRODUCTIVITY TAX: Did you know: research shows that the average leader is tapping into only 65% of the capability their team has to offer. 


We also know that talent is not only the largest investment on most portfolio company P&Ls, but also the biggest determinant of whether that company will be successful or not.

And when we think about it in these terms—our “return on talent”—it is kind of like we’re paying our people $1.00, and getting back $0.65 of value back.

(To be clear, this isn’t to ascribe blame to those people themselves. This has to be attributed primarily to a failure in leadership.)

When we multiply this missed-opportunity over a company’s entire workforce—let alone an entire portfolio of companies—the cost can be massive! 💰 💰

How much might the Lost Productivity Tax be costing your portfolio?

We created a tool to help business leaders find out, which you can check out below. Warning: Most people who use this tool find the output to be eye-opening. 😮

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☑️  THE MISHIRE TAX: Approximately 50% of executive hires fail within the first 12 – 18 months. And the cost of a mishire can be astronomical: up 5 – 15x that person’s annualized salary. 

Multiply this out over the [X] hires your portfolio companies are doing this year, and the cost can be staggering. 💰 💰

But the thing is: these supremely costly taxes often go unnoticed because they aren’t represented by a hard-dollar line item on your portfolio company’s P&L. And what doesn’t get measured goes undiscovered.

But there’s hope. 👍

Want to stop throwing good LP money down the drain and minimize these 2 invisible taxes in your portfolio? Get great at 2 things: 


✅  Hiring exceptional leaders. According to research by Alix Partners, “[the presence of] a world-class management team is the #1 predictor of a strong exit for a portfolio company.”

But we also know that 50% of executive hires are mistakes.

Translation: This is critically important, but the average investor and executive isn’t great at it.

“The most common failure [of a senior leader] is not having the right people on your team. Fewer than 14% of all leaders excel at this.” From Power Score: Your Formula For Leadership Success

But I’ve got your back. I’ve put together a guide that can help investor-backed companies to get the right leaders into the critical roles with more confidence & consistency. Check it out here ⤵️

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✅  Creating workplaces that bring out the best in people, and set them up for success. 

The alarmingly high failure rate of new hires isn’t just a result of hiring the wrong people. Oftentimes, it is a result of putting otherwise talented and fit-for-purpose people into an environment that doesn’t draw out their best. One that doesn’t set them up for success.

This is a topic I talk a lot about in my book, The Blue Flame.

Call this an issue of culture. Call it a failure of leadership. The root causes can vary.

But in an upcoming post, I’ll share more on how investors can take responsibility for ensuring that the talent that their companies are paying top-dollar for are put into a position to succeed. Stay tuned. 👊 

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