Venture Capital Accounting: Essential considerations for Hiring an Accounting
Posted by Aisha Wehrle on April 30th, 2021
The stark reality of venture capital enterprises that have just entered the business is that in their initial phase, they face a problem where bookkeeping is no longer capable of handling the moving parts. It requires an entire team of accounting specialists who are professionals in accounting, legal, and tax concepts to effectively report and manage the domains.
The essential checklist to be ticked through venture capital accounting are:
- Perpetuating portfolio valuation based on the figures of moving areas.
- Forecasting the value of illiquid, multi-year private enterprise holdings
- Handling complex tax structure and creating tax records
- Scheming and reducing management fees.
- Creating audits and annual or quarterly financial reports.
- Calculation of profit shares based on the value of lockups, holdings, exit proceeds, etc.
- Clear, concise, and regular communication with all the stakeholders.
- Assigning investments for a few partners who were onboarded at contrasting times
If any of the above-given pointers is yet to be checked by your business or organization and if you are working on it yet it is taking a considerable amount of time from those whose focus should be somewhere else then maybe it is the right time to bring a venture capital accounting firm on board.
Let us see some of the considerations VCs should consider when getting an accounting firm on board.
- Is there a shortage of internal expertise for various financial services?
You may have people in your team who are well-versed and professionals when it comes to financing but the question is- are they experts in various angles of venture capital finance and LP management? Well, of course, they can always learn along the way as they go but remember that they are learning on your dime and not being an effective part of the business.
Other options such as outsourcing accounting services may run your whole operation or work on a support basis which is to be fair is not constructive to the firm. Having an accounting firm’s integration in your fund can scale with your desired needs.
- Has your portfolio surpassed excel?
A fund in its initial stage may be able to manage and look after most of its finances through spreadsheets but it won't be long till you need an upgraded solution.
One of the key benefits of introducing an accounting firm is that they enter armed with the latest accounting systems as well as fund accounting software have automated tools that help you with reporting, warrants, preferred stocks financing, etc. They contribute towards your KPIs.
The software saves your time as well as money, as well as provides you with the capacity to readily export reports with an easy-to-understand visualization for your stakeholders.
- Do the firms you are considering have the right VC experience?
It is important to do a background check before trusting an accounting firm since no two firms are alike and even though firms may tell you that they have the right VC expertise, you must dig deeper and check out their credentials.
Managing the accounting complications of an investment fund is an offbeat and unique skill that is often hard to find. The accounting firm that you choose should be able to demonstrate that they do have experience in national as well as multinational investment partnerships and can understand all the regulations and requirements that are needed to venture capital.
