As a venture capital manager, you understand the importance of fund accounting. The value, performance and trajectory of your assets must be accounted for by some fund accounting team and tracked so that you can satisfy LP demands for transparency and make informed decisions on fundraising, asset acquisition and management. However the decision whether to perform fund accounting in-house or outsource the fund accounting function comes down to factors beyond the day-to-day life of the fund. Your ability to respond to the demands of regulators and control the perception of your fund in the eyes of current and potential LPs benefits from professionalized, fully-equipped experience-based fund accounting. The regulation and reputation of your offering are best served by an outsourced fund accounting partner.
The Tightly Regulated VC Space
Venture capital is not the maverick, rule-breaking industry it used to be. Venture capital has entered the mainstream and LP expectation and regulatory scrutiny are part of life for venture capital managers. Regulators keep a keen eye on the VC industry and your fund accounting partner must be experienced and equipped to maintain the regulatory compliance you need.
Venture Capital Fund Accounting Standards
- U.S. VC firms are subject to Financial Accounting Standards Board (FASB) best practices.
- Domestic firms also have to follow SEC regulations.
- State and local government rules may apply as well, depending on your jurisdiction of registration.
- International VC firms must adhere to the rules of the International Accounting Standards Board (IASB).
Regulatory rules can easily overwhelm teams not experienced or equipped to respond to them. Fines and/or sanctions can be levied on violators of only a single regulatory requirement. Your fund accounting systems and processes must be both comprehensive and versatile to support full compliance and your fund accounting team must know how to implement to simplify the process.
Managing venture capital fund accounting in-house is certainly possible but it, at best, represents a distraction from the core mission of fund management and, at worst, represents substantial operational risk.
Enhancing Your Reputation
Venture capital is an appealing investment and interest abounds among potential LPs. But that ‘wild west’ reputation is an enduring one and your image as a competent and successful venture capitalist will suffer if transparency, reliability and promptness are lacking in back-office service to the people who contributed your investment capital. The frustration of many LPs is the sensation that once their investment capital was delivered it was the last they heard anything constructive from management. Where are the updates? How are the assets performing against milestones? Where is the communication from management? Experienced outsourced fund accounting allows you, the manager, to focus on management while the communication, reporting and LP management essential to your reputation is handled by a professionalized team who has done this work many times before.
It is a common-sense division of labor to assign tasks according to core competencies in an integrated and smooth-running operation. You want your interactions with your LPs to be high-quality substantive conversations. Day-to-day LP demands for information, updates and deliverables met systematically by your fund accounting partner enables you to enjoy only that high-quality personal interaction with LPs and magnifies your reputation throughout the industry.
Reputation is everything. Fund accounting excellence with high-touch professionalized service for your LPs represents you as a successful manager who recognizes value, investing in LP relations as thoughtfully as you invest in the assets that drive your success.