The stark reality all young venture capital enterprises eventually face is that your level of bookkeeping is no longer enough. It takes a team of accounting specialists with a mastery of legal, accounting and tax concepts to effectively manage and report on all of the moving parts.
The main checkboxes to be ticked through venture capital accounting are:
Maintaining portfolio valuation based on a number of moving parts
Projecting the value of illiquid, multi-year private company holdings
Tracking of limited partner ownership while managing ongoing capital calls
Allocating investments for limited partners who were onboarded at different times
Calculating and deducting management fees
Calculating profit share based on the value of holdings, exit proceeds, lock-ups, etc.
Managing the complex tax structure and preparation of tax records
Preparation of audits and quarterly/annual financial reporting
Regular and transparent communication to all stakeholders
If any of these boxes have yet to have been checked by your organization, or are taking up valuable time from those whose focus should be elsewhere, it may be time to bring in a VC accounting firm.
Here are a few considerations VCs should consider when looking to onboard an accounting firm
1. Has your portfolio outgrown Excel?
A fund in its infancy may be able to manage most of its finances in basic spreadsheets, but it won’t be long before you need a better solution.
One of the benefits of bringing in an accounting firm is they come armed with familiarity with all the latest accounting and reporting systems so you don’t need to spend valuable time researching different solutions. They can help you implement robust automated tools that help you keep track of how complex moving parts such as warrants, preferred stock, rounds of financing etc. contribute towards your KPIs.
These tools save you both time and money in your accounting, and also provide you with the ability to readily export reports with easy-to-interpret visualizations for stakeholders.
2. Are you lacking in internal expertise for various financial services?
You may have people who are well-versed in finance on your team – but are they experts in all the angles of VC finance and LP management? They could always learn what needs to be learned as they go – but then they’re learning on your dime and not executing effectively.
Outsourced accounting services can either run your entire operation or work on a support basis. An accounting firm’s involvement in your fund can scale with your needs.
3. Do the accounting firms you are considering have extensive VC experience?
No two accounting firms are alike – even if a firm promotes that they have VC expertise, it’s worth digging deeper to check their credentials.
Managing the accounting complexities of an investment fund is a unique skill that is often difficult to find. The accounting firm should be able to demonstrate that they have extensive experience in multinational investment partnerships, and can bring a deep understanding of the regulations and requirements that are unique to venture capital.
Benefit from the financial lessons we’ve learned from working with leading Silicon Valley VCs
San Francisco VCs look to GCG for expert accounting services
500 Startups offers seed investments and a new micro-fund model along with design, data and distribution expertise via its network of mentors with strong ties to prominent Silicon Valley companies. Likewise, our venture capital CFO consultants help clients succeed in ways other outsourced financial and accounting firms do not.
Founder Dave McClure engaged GCG early, even before his fund’s first close, recognizing the significant assistance a trusted advisor and colleague could make at that stage. “As a startup ourselves, we needed a partner who could both help with our complex fund issues as well as with our portfolio companies. GCG’s guidance and counsel began when 500 Startups was just an idea, and it’s continued to this day. In a fast-paced environment like ours, I need to know that I have reliable and professional support. We couldn’t operate without that.”
More than 200 Venture Capital and Top Private Equity Firms have found that our back-end financial and administrative services save them time and money by providing the high-level executive insight they demand but don’t need as a full-time employee.
Contact us today for a free consultation and learn how we can support the health and expansion of your business.