Fund administration is a third-party service that handles a venture Fund’s Accounting, Tax Compliance, Investor reporting, Asset valuation, capital calls, and capital distributions.
By outsourcing these back-office tasks to a trusted partner, you’ll have more time to spend with entrepreneurs and investors. A reliable fund administrator doesn’t just save you time; it also builds your investors’ trust. Having a respected fund administrator lets Investors know two things: (1) that you’re laser-focused on your portfolio, and (2) that you care that your accounting is in order. Some Investors are so bullish on the value of a fund administrator that they require emerging managers to select from among a trusted group of service providers. Investors expect their fund managers to provide polished financials outside of regularly scheduled reporting. A fund administrator will help you demonstrate this level of managerial efficiency.
As a first-time fund manager, you already have a lot on your plate. Building relationships with Investors and entrepreneurs is exciting work—but it’s also time-consuming. That’s why delegating back office support to a trustworthy fund administrator is such a worthwhile investment. Working with a fund administrator is a requirement for emerging managers’ success in today’s competitive market. Most Sponsors seeking institutional capital used an external fund administrator. Having a strong fund admin team to support your back office is instrumental when you’re scaling a syndication firm.
As you set up your first fund, you’ll need to decide which service providers you’ll partner with. The most important of these are your fund administrator, legal counsel, bank, and payroll and benefits administrators. The optimal time to start working with a fund administrator—and all your key service provider options—is when you’re 3 to 6 months from your first close. This will give you a head start on setting up your back office. In this pre-first close period, carefully consider all of your key provider options at the same time, as one decision will often inform another. This might be due to the way the teams work together using the same platform, or how technologies from different providers will integrate. While there’s no fixed order or timeline for establishing these partnerships, you’ll want to avoid paying for the same service twice. Ideally, you’ll be onboarded with your fund administrator and trained up on its processes before your first close. Onboarding early makes the whole process easier—you’ll need less documentation to get set up, and you’ll be able to onboard Investors immediately after the close. This will ensure that your first capital call and subsequent fund updates will be smooth and efficient. A fund administrator can also work with you to set up a regular cadence of capital calls to help your Investors plan for efficient capital deployment.
Choosing your fund administrator is an opportunity to think through your strengths and weaknesses as a fund manager, as well as what kind of brand presence you’d like to project for your Investors. Think about the community and communication style you want to establish: Are slide decks limited to your annual meeting, or will you send one along with your quarterly report? Will you need up-to-the-minute data and charts to illustrate your points? Will you want Investors to be able to access fund documentation themselves? These aspects of your fund’s brand identity are traits that the right fund administrator can help you establish.
Being a venture capitalist requires creative, convincing storytelling. When Investors commit to a 5-year fund, they’re investing in the vision of the future that you’ve articulated. After your first close, Investor communications will be your opportunity to reinforce and readjust your narrative. Your fund administrator’s features can help you craft this narrative.
To tell an inspiring story, you’ll first need to make sure you’re an expert on your own portfolio. A fund administrator lets you become that expert by supplying data insights and freeing up time for you to meet and mentor portfolio entrepreneurs. To gain trust and credibility with your Investors, you’ll want to be transparent about your progress: Frank assessments of uncertain bets matter just as much as exciting breakthroughs. Engaged Investors are looking for more than percentages and returns. They want to evaluate a manager’s ability to execute on a strategy, as well as the thought process behind any potential pivots.
As you move toward your first close, your fund administrator will help you demonstrate the high level of operational competency that institutional Investors expect. The right fund admin can help highlight your team’s strengths, offset any weaknesses, and offer the wisdom, experience, and support you need to get your fund off to a great start.
Contact us at 844-4-CALCPA or request a consultation through our website today.
We offer a free consultation to qualified business clients
Receive our free newsletter for regular accounting and tax updates.