Venture capital investment vehicles could be among the most profitable for opportunity zone investments. Venture capital has the potential to deliver the original investment multiple times over. As a result, venture capital could deliver the highest returns of any other opportunity zone investment.
"This investment type requires an entirely different subset of skills and is typically best suited for experts in targeted industries or seasoned venture capitalists. However, venture capital investing is known for some of the most eye-popping returns," Braden Crockett, VP and director of opportunity zones at Matthews Real Estate Investment Services, tells GlobeSt.com. "With so much riding on the size of the gain after a 10-year hold, this investment vehicle has the potential to deliver the highest returns out of any other opportunity zone investment. Imagine investing as a seed investor in tech darlings like Uber, Facebook, or Google had operations located within qualified opportunity zone."
As with any investment, there is an upside and downside to leveraging venture capital. The return profile is most certainly the upside of using venture capital for opportunity zone investments. "Potential to earn your original investment multiple times, ranging from 100% to 76,000% returns for early investors," says Crockett.
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On the flipside, there are also cons to venture capital vehicles. Namely, they tend to be difficult to access. "All or nothing high risk and high reward investment. Very exclusive opportunities that are difficult to access," says Crockett.
In addition to venture capital, Crockett also adds that combining the tax benefits with energy incentive programs can also amplify returns. This includes energy projects and combining with other incentive-driven programs such as density bonus's or additional tax credits, according to Crockett. "Taking advantage of additional rebates and tax credits for renewable energy development projects can compound returns and provide a nice hedge for investors worried about liquidity when their original capital gain tax bill is due in 2026," he says. "For example, CIM is one of the groups that have experience in large-scale energy projects and is working on an opportunity zone solar farm."
These are the additional benefits to opportunity zone investments, but these still don't compare to the tax deferral benefit. While there are numerous benefits offered in the qualified opportunity zone program, there is only one worth jumping through the hoops for," adds Crockett. "This is, of course, the ability to forgo 100% of the gains on the sale of the qualified opportunity zone program after certain qualifications are met, such that the property must have been substantially improved and held for a total of 10 Years."
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