Accounting & Tax Planning Considerations For Venture Capital Funds

Learn more about venture capital fund accounting and tax compliance for the benefit of your business.

What is Venture Capital Financing? 

Venture Capital is financing provided to business start-ups with high growth potential. Although many of these investments typically have high-risk levels for investors, high returns are also possible and offset the risks. The investors are usually high net-worth individuals who can afford to take significantly higher risks associated with venture capital investments.

There are several stages involved with a business’s initial growth, where venture capital may be invested. A small amount — known as seed money — is invested with the intention of providing a proven business concept. Once product development has begun and market share is in the process of expansion, the venture capital investment amount is higher, and finance is dispensed in several rounds. Investors can recoup their investments by either selling the business to a larger company or by selling shares in the business at a public offering.

Accounting for Venture Capital

Venture capital fund accounting can be complex. Typically, venture capital investment firms invest $10 million or less in numerous business startups with high growth potential. These firms will then exit by selling their shares in equity financing, mainly at initial public offerings (IPOs). Both private equity and venture capital firms have special accounting needs that include:

  • Venture capital tax planning that includes state, local, and international tax consulting services, strategy, and structure
  • Full-scope auditing
  • Financial modeling, projections, and other complex financial projects
  • Various business valuations and other business matters
  • Transaction advisory services
  • Executive search services
  • Systems development, such as accounting, internal control procedures, and budgetary systems
  • implementing computer systems, or maximizing existing systems
  • Internal audit assessments
  • Purchase price allocation
  • Develop cost-effective responses
  • Business advisory services
  • Due diligence preparedness for buyers and sellers
  • Access viability acquisitions by evaluating and implementing successful plans of acquisitions
  • Pre-transaction planning and evaluation
  • Opening balance sheet audit

That is a lot for a venture capital accountant to keep up with, which is why instead of having just one venture capital fund accounting specialist to manage everything, most firms outsource these tasks to a CPA firm that specializes in venture capital accounting team like ours.

Fusion CPA can help you understand the appropriate accounting methods to apply when dealing with venture capital funding


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Feasible Tax Incentives

Your ability to take advantage of venture capital tax incentives relies on the proper record keeping of the sources and the amounts you receive within a tax year. Suppose you own stock in a small company and the price eventually appreciates and is sold, there should be no taxes on your profits as an investor. To avoid paying the venture capital tax, the issuer should be a C-corp and have held the stock for over six months.

Benefits of Venture Capital and Other Equity Accounting

Accounting services can help funded companies in various ways, including:

  • Implementing or integrating reliable accounting software into your management system.
  • Evaluating your existing venture capital fund accounting system for corrections.
  • Updating your general ledger accounts, practices, and tax rules.
  • Setting up your venture capital accounting technology system and providing training.

Allowing a competent, certified accounting professional to implement or integrate accounting software can help improve efficiencies within your financial management system.

Partnering With a Trusted CPA

Providing educational information about venture capital accounting and tax compliance is a fundamental part of the services an outsourced professional CPA provides. At Fusion CPA, we offer venture capital CFO business advisory services designed to help your venture capital firm maximize its tax incentives and identify opportunities for growth. Our goal is to serve as your partners, supplementing your business initiatives while helping your organization achieve its long-term and short-term goals.

We work with small to medium-size venture capital firms to help create personalized tax strategies that address unique challenges. Our venture capital financial advisers can assist with principal tax planning, preparing financial reports, auditing of financial statements, and can help ensure reporting is accurately done.  We provide accounting and tax services to investors, individuals, C- and S-corporations, entrepreneurs, and small businesses.

You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!


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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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