The importance of quality service providers
As a GP, you need to spend as much time as possible sourcing deals, performing diligence, and making investments. When you’re running your fund, you won’t have the time or bandwidth to handle administrative tasks, so it’s critical to find service providers who can help your fund to operate smoothly.
Every service provider—from a tax firm to a payroll provider—offers something slightly different, so it’s smart to consider the following questions when evaluating a provider, among other considerations:
- How strong is their venture-focused practice?
- How much expertise do they have in venture capital?
- How many other venture capital clients do they currently serve?
- What is their reputation among other similarly sized venture capital firms?
- How much do they invest in and value technology and automation?
An audit provider is the ultimate arbiter of quality and accuracy when it comes to your fund’s finances. Not only will your audit team review the financial data and financial statements you send to current and prospective LPs, they’ll also provide the final approval of your fund’s track record.
For smooth valuations, accounting, and financial reporting, you need an audit team that has experience in analyzing and auditing venture capital assets. If you choose an audit team that doesn’t understand the venture capital world, you might find yourself having to educate auditors on venture capital-accepted accounting and financial reporting standards. This can lead to lots of unnecessary back and forth conversations.
Fortunately, there are plenty of audit firms that specialize in venture and have invested significant time and strategy into learning how to synthesize data from disparate sources and systematize their data flows. For example, some audit teams catalogue all your fund’s audit-ready data in one centralized location, so it’s ready to review and authenticate.
Building a relationship with a tax provider that has specific expertise with venture capital will pay dividends. A skilled fund tax professional can help you navigate early structural decisions around building a tax-efficient fund structure.
As your fund grows, a fund tax provider can help you model the tax impacts of large distributions and provide guidance as the fund returns capital. They provide tax return preparation services and should also ensure that all your LP information—including tax filing addresses—is accurately reflected in the records of the IRS (or, if applicable, any other tax authority) and up-to-date so you and your investors don’t face penalties or interest.
Similar to certain audit providers, some fund tax providers have worked to streamline and automate the information management process so they can provide accurate tax documents to LPs with less hassle. At Carta, the third party tax professionals who integrate with our platform are highly specialized in dealing with venture assets. We’re also constantly adding features to our platform to make it easier to capture investor information and understand tax implications.
Tech stack, payroll, banking
There are other service providers that can drastically improve your fund operations. Those generally fall into one of three categories:
- Tech stack
- Payroll and benefits
Your fund’s tech stack includes the various deal sourcing and stage management tools you’ll use to monitor, track, and analyze your investment conversations. Instead of tracking your conversations in a spreadsheet, which can be clunky and tedious, it’s a better idea to invest in a scalable data management process that will serve your fund for the long term.
As a GP, you’ll need to quickly reconcile cash transactions so you can stay on top of your fund operations. Instead of partnering with a bank that relies on physical reconciliation processes, look for a banking service provider that can integrate with your fund’s software and which has the appropriate security controls in place.
Payroll and benefits
Investing in a comprehensive, scalable payroll system can help you run your fund with less stress. Automated payroll systems make it easier to streamline your accounting, outline your benefits structure, and onboard new team members as you grow.
At Carta, we work with over 650 unique venture capital funds, so we can suggest various options based on the platforms that our clients love to use.
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