Accounting & Taxes

As long as all of the QSBS requirements are met, then carried interest would qualify for it.

As long as all of the QSBS requirements are met, then carried interest would qualify for it.

The difference would only come if there were offsetting fees that would reduce the base management fees. The base management fees would be calculated from what is stated within an LPA.

The difference would only come if there were offsetting fees that would reduce the base management fees. The base management fees would be calculated from what is stated within an LPA.

Capital calls are not typically treated as taxable events. They represent the contribution of committed capital from limited partners (LPs) to the fund, which is then used for investments or to cover ongoing expenses. This is a transfer ...

Capital calls are not typically treated as taxable events. They represent the contribution of committed capital from limited partners (LPs) to the fund, which is then used for investments or to cover ongoing expenses. This is a transfer of capital rather than income or profit, so it does not generally trigger a tax liability. However, any gains or income generated from the use of that capital in investments could potentially be subject to tax. Always consult with a tax professional for specific advice.

Venture Capital funds typically do not specify whether a capital call is for investment or management fees when requesting funds from Limited Partners (LPs). The capital call is generally used to cover both investments and ongoing expens...

Venture Capital funds typically do not specify whether a capital call is for investment or management fees when requesting funds from Limited Partners (LPs). The capital call is generally used to cover both investments and ongoing expenses such as management fees, legal and accounting fees, and other operational costs. The specific allocation of the funds is determined by the fund manager as per the terms of the Limited Partnership Agreement (LPA).

Markdowns for a struggling portfolio company that hasn't raised funds in 3 years are determined by the valuation policy adopted by the fund. The valuation policy should provide guidelines on how to value such investments. This could invo...

Markdowns for a struggling portfolio company that hasn't raised funds in 3 years are determined by the valuation policy adopted by the fund. The valuation policy should provide guidelines on how to value such investments. This could involve considering the company's financial performance, market conditions, or other relevant factors. If the company's performance has deteriorated or if it's facing significant challenges, a markdown may be appropriate.

The fund admin functionality which includes the capital call tool is currently only available for Decile Partners firms. 

The fund admin functionality which includes the capital call tool is currently only available for Decile Partners firms. 

Markdowns are determined by the valuation policy that the fund adopts. 

Markdowns are determined by the valuation policy that the fund adopts. 

No. Managers should only call the amount of capital that they need for current investments, fund expenses, and management fees. Excess capital sitting in a bank account without being deployed reduces the IRR of the fund. As a rule, manag...

No. Managers should only call the amount of capital that they need for current investments, fund expenses, and management fees. Excess capital sitting in a bank account without being deployed reduces the IRR of the fund. As a rule, managers should keep fund bank account balances low and call capital as needed.

As a VC, you should do your best to ensure that you get preferred equity. The reason that preferred is more valuable is because of special rights, that this class of stock receives and that's why it's more valuable. It's sub-optimal for ...

As a VC, you should do your best to ensure that you get preferred equity. The reason that preferred is more valuable is because of special rights, that this class of stock receives and that's why it's more valuable. It's sub-optimal for you to value the delta between common and preferred by $$ because there are other more important factors such as where your fund will be in the preference stack at the time of exit that is the difference between a return or a total loss.   My advice is for you to do whatever you can to retain the preferred warrants in this situation. 

Startup valuations are typically set by the market of investors. If there is a high investor demand, the valuation of the startup is typically higher. If there is low investor demand, the valuation of the startup is lower. If there is no...

Startup valuations are typically set by the market of investors. If there is a high investor demand, the valuation of the startup is typically higher. If there is low investor demand, the valuation of the startup is lower. If there is no investor demand, the startup will not secure financing. 

Most VC firms set up the fund, the general partner and the management company in Delaware, including firms with foreign Managing Partners. This provides a clear structure with unified control and governance, and it helps to manage costs,...

Most VC firms set up the fund, the general partner and the management company in Delaware, including firms with foreign Managing Partners. This provides a clear structure with unified control and governance, and it helps to manage costs, which can escalate quickly when law firms in different jurisdictions need to coordinate. All of the Delaware companies are passthrough entities under US law, which means that profits and losses are passed directly to the owners of those entities without being taxed. The Managing Partners, who are the owners of the management company, traditionally take distributions to have passthrough treatment of management fees and other gains. They then pay taxes personally. With foreign Managing Partners, the tax treatment of passthrough gains distributed from the management company is governed by tax treaties. With some treaties, the ideal tax optimization strategy is to set up a blocker company or other entity in their local country or in an intermediary country. The best way to determine the tax strategy is to interview a few local tax specialists that are familiar with US venture and ask during the interview. With this said, aggressive tax optimization can be very expensive and time consuming, distracting Managing Partners from the core activities of fundraising and investing. Tax optimization can also be done closer to the time of an exit, when the proceeds and the details are clearer.

Hi Scott, unfortunately it is not ideal for you as a Canadian to domicile your entities in the US. The reason being is that Canada does not recognize US LLC's as an entity type. You end up getting hit at a much higher tax rate on both yo...

Hi Scott, unfortunately it is not ideal for you as a Canadian to domicile your entities in the US. The reason being is that Canada does not recognize US LLC's as an entity type. You end up getting hit at a much higher tax rate on both your management fee income and any carry as it would get hit at a corporate tax rate and again when you take a distribution.

Adeo: The Organizational Fees are for setup and have a cap, and there annual Fund Expenses that are not capped right now. I am speaking to the lawyers about a cap.

Adeo: The Organizational Fees are for setup and have a cap, and there annual Fund Expenses that are not capped right now. I am speaking to the lawyers about a cap.

This is driven by investment decisions, not by contractual language. I would not recommend including this unless explicitly asked.

This is driven by investment decisions, not by contractual language. I would not recommend including this unless explicitly asked.

Part of 1065 filing. Partner specific form which details distributive share of all income and expense items incurred by the partnership.

Part of 1065 filing. Partner specific form which details distributive share of all income and expense items incurred by the partnership.

A specific US federal tax exemption that allows investors in Qualified Small Business (defined as under $50M capitalization) for some capital gains tax exemption (up to 100%) based on how long the stock is held (minimum 5 years) up to $1...

A specific US federal tax exemption that allows investors in Qualified Small Business (defined as under $50M capitalization) for some capital gains tax exemption (up to 100%) based on how long the stock is held (minimum 5 years) up to $10mm. This provision is a frequent target of proposed tax law changes, though (as of January 2023) it is still in place.

Compare the price per share between your purchase price and the current price when acquired, and then record this differential as a markup. This assumes that you will have the same number of shares. If the share counts differ, then just ...

Compare the price per share between your purchase price and the current price when acquired, and then record this differential as a markup. This assumes that you will have the same number of shares. If the share counts differ, then just calculate the value of the ownership position before and after using the price that you paid as the value at the start. Technically, since it is an all stock acquisition, you have not exited, so I would not characterize this as an exit.