Accounting & Taxes

36
1
Top answer:

Yes, the interest earned from a convertible note is typically added to the cost base in the schedule of investments when the note converts to preferred. The interest is usually converted into additional shares of preferred stock at the t...

1
Top answer:

Yes! Only the fees outlined in the engagement letter will be charged by Decile Group. Other fund expenses, such as Delaware annual renewals, tax filings, Form ADV amendments, or registered agent fees are examples of additional costs to c...

1
Top answer:

Decile Group requires automatic debits for monthly or quarterly payments. If you are on an annual payment plan, you may elect to pay via a traditional invoice with a wire transfer.

 -  Nicholas Bird
0
2
Accounting & Taxes

Should I make an s-corp election for my management company LLC to save on taxes?

Asked by:
Community Member
1
0
0
Jan 17, 2024

Does it makes sense to make the S-Corp election for the LLC so that you can take advantage of the Pass-Through Entity Tax election (so that you can deduct your CA taxes and escape the $10k SALT limit).

Top answer:

To make the PTET election an estimated payment must be made by June 15th of the tax year in question so if that was not done the first available option is for the 2024 tax year. Generally the PTET election is not recommended unless the t...

1
Accounting & Taxes

What are typical expenses (uses and amounts) for the first year of a new $5MM venture fund?

Asked by:
Community Member
1
0
0
Jan 04, 2024

If the fund draws 3% management fees in the first year of a $5MM fund, the firm has $150k to spend on its functions and salary.  What are the business expenses and how much should we expect to pay for these?

Top answer:

Some business expenses that are typically paid from management fees include: Laptops & Equipment, Salaries, LP Events, Software, Due Diligence and Travel. Please review this article on fund expenses: https://govclab.com/2022/11/07/mana...

1
Top answer:

It's really difficult to build an enduring VC firm on AngelList. Consider getting off AL. If you're going to setup a fund in BVI, all entities need to be in BVI. It's super expensive and inefficient for you to have entities in multiple d...

1
Accounting & Taxes

What's the difference between base and net management fees?

Asked by:
Community Member
1
0
0
Dec 06, 2023

Question came to mind after reviewing the accounting section of Decile Hub

Top answer:

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.

 -  Rob Del Prete
0
1
Accounting & Taxes

How are capital calls treated for tax purpose?

Asked by:
Community Member
1
0
0
Dec 05, 2023

Top answer:

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 ...

1
Top answer:

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...

1
Top answer:

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...

2
Accounting & Taxes

Creating a capital call

Asked by:
Community Member
2
0
0
Dec 01, 2023

Hey all,  How to create a capital call, when I do not see it in the top menu of the capital accounts? Thank you all!

Top answer:

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

 -  Mike Suprovici
0
3
Accounting & Taxes

Clawbacks and Cornerstone LPA 2.0

Asked by:
Community Member
1
0
0
Nov 28, 2023

With respect to a Cornerstone LPA 2.0 agreement; under what conditions would partners in a venture capital fund give back up to 20% of distributions to satisfy [fund] obligations?

Top answer:

Clawbacks would be very unusual - here are two examples of situations in which the Fund may need to claw back distributions to satisfy the Fund's obligations (but this is by no means all-inclusive): • If proceeds have been over-distribut...

1
Accounting & Taxes

Should I call more capital than I need?

Asked by:
Community Member
1
0
0
Nov 16, 2023

Top answer:

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...

1
Accounting & Taxes

Options and Taxable Events

Asked by:
Community Member
1
0
0
Jul 23, 2023

Let's say you have a right to receive Pref Warrants from a Portfolio Company, but the company wants to change them to Common Warrants or Options that are a part of the stock option plan.  All things being equal (e.g. strike and number of options),...

Top answer:

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 ...

2
Accounting & Taxes

Is a DCF (Discounted Cash Flows) method generally being used to calculate a startup valuation?

Asked by:
Community Member
1
0
0
Jul 23, 2023

Since DCF method uses historical data to predict future cash flows of the company, this usually does not fit a startup since we have very little to no data on the cashflows. It is better to look for some benchmarks to tell valuation of a startup s...

Top answer:

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...

1
Accounting & Taxes

Regarding fund domiciling in Delaware for non US residents, should we set up the management company in another country to avoid paying extra US taxes?

Asked by:
Community Member
1
0
0
Jul 01, 2023

What is the usual tax rate in the USA for non-US residents but who have a management company paying them a salary in Delaware? 

Top answer:

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,...