Your firm will encounter various challenges with venture capital fund accounting as your portfolio becomes more complex. Some of the most prominent challenges involve analyzing market data, conducting due diligence, deal flow management, and generating financial statements.
Over time, these processes will eat away at an increasingly large percentage of your team’s day, meaning you’ll have less time to interact with investors, which can ultimately hinder your firm’s growth.
To maintain a strong growth trajectory and keep delivering for your investors, we recommend two actions. First, you should familiarize yourself with the root cause of V/C accounting challenges. Then, you should address productivity roadblocks by embracing new tools and technology.
Let’s explore how you can solve today’s challenges and set the stage for tomorrow’s successes.
Familiar Sources of Venture Capital Fund Accounting Issues
While a variety of factors can contribute to accounting challenges in the V/C space, most of the following impediments can be attributed to a small number of common mistakes.
Reliance on Spreadsheet-Based Financial Statements
Many venture capital firms rely on spreadsheet-based financial statements while simultaneously encouraging their investors to invest in leading-edge technologies and emerging businesses. This trend is something of a paradox in the venture capital sector that is driven by innovation.
While spreadsheets can be a viable option when a firm is in its embryonic stages, using such difficult-to-scale tools quickly becomes impractical. Therefore, firms should break away from spreadsheet software in favor of a more robust alternative.
A Lack of Consistent Reporting Standards
V/C firms are subject to many of the same regulations as other firms operating in the financial sector. Despite this fact, venture capital is often viewed as the “wild west” of investing.
Although fund managers need to be innovative to deliver value to investors, they must still adhere to consistent reporting standards. Otherwise, venture capital firms will inevitably experience compliance challenges and put themselves at risk of failing audits, neither of which is good for growth.
In a worst-case scenario, a venture capital firm can incur significant fines and permanently damage its reputation, alienating investors in the process.
Disparate Software
Using spreadsheets can be detrimental to a company’s efficiency and productivity. However, the challenges associated with this practice are magnified when an organization is dependent on spreadsheets and relies on a cobbled-together network of disparate software.
In this scenario, critical investor and portfolio data sets are scattered across multiple systems, devices, and file folders, making it virtually impossible to keep track of valuable information.
Using disparate software also increases a firm’s vulnerability to cyberattacks.
When information is spread throughout disparate software solutions, hackers have more avenues through which they can exploit a firm’s confidential data. This setup is concerning because even one cyberattack could threaten operations and cost the firm millions.
The Solution: Cloud-Based Firm Management Software
A few consistent themes emerge when examining the common causes of venture capital fund accounting challenges. Typically, firms that encounter difficulties in accounting processes are plagued by such issues as:
- A lack of data visibility
- Disparate systems
- Too much manual input
- Labor-intensive processes
While many factors contribute to accounting pain points, a single solution can remedy them all.
If you’re interested in modernizing your operations and optimizing your accounting capabilities, you should consider adopting a cloud-based enterprise resource planning (ERP) platform.
We recommend the Oracle NetSuite ERP platform for venture capital firms. By adopting this platform, you stand to accomplish several goals at once. Let’s dive into the advantages of utilizing an ERP such as NetSuite.
1. Simplify Data Collection
Gathering and tracking business data is essential for monitoring portfolio performance. However, keeping track of all your financials, key performance indicators (KPIs), and other relevant data can be a nightmare, especially if you’re using disparate platforms.
A unified ERP solution can simplify your data-collection processes by equipping you with powerful automation tools. You can use this technology suite to add custom KPIs, set up dynamic reporting protocols, and make better use of all of your data.
Since such a solution is fully integrated with your firm’s technology assets, you’ll never lose sight of essential data again.
2. Improve Your Analytics Capabilities
Collecting data is critical to improving your firm’s performance. But that data will only deliver value to your firm if you have a way to analyze it. Once again, a cloud-based ERP solution provides the answer.
Modern ERP software such as NetSuite comes equipped with powerful analytics tools that you can use to generate detailed reports and conduct real-time analysis of your data. You can break down massive sets of information into easy-to-understand reports that can then be used to guide investment decisions.
3. Streamline Venture Capital Reporting
To build trust with investors and cultivate a strong brand image, you must keep them in the loop. However, this is often easier said than done, as generating reports for investors can be tedious and labor-intensive.
If your team is constantly busy preparing reports, they will be unable to focus on more dynamic tasks, such as performing due diligence on new investment opportunities.
By leveraging an integrated ERP solution, you can streamline venture capital reporting processes. Your team members can use a customized dashboard to respond quickly to investor inquiries and generate detailed reports more efficiently, allowing them to devote more time to high-level tasks.
4. Adhere to Established Best Practices
Following accounting best practices can be difficult when information is compartmentalized and spread throughout your firm’s software assets.
On the other hand, failing to adhere to these guidelines and practices create friction between you and your investors. Taking a lax approach when it comes to frameworks like the Generally Accepted Accounting Principles (GAAP) can also cause unnecessary headaches when auditors pay you a visit.
An ERP solution like Oracle NetSuite includes built-in functions and features designed to support your adherence to accounting best practices. It can also assist with compliance with SOX regulations, keeping you in good standing with industry watchdogs.
For instance, NetSuite issues independently audited SOC 1 Type 2 reports on a regular basis, which can help your firm meet financial audit requirements.
Finding the Right Solution for Your Venture Capital Firm
If you want to make your venture capital fund accounting challenges a distant memory, you need to replace spreadsheets and disconnected software with a cloud-based alternative. While many solutions are available, Oracle NetSuite ERP represents the premier platform for V/C firms.
However, before you can leverage the capabilities of this robust platform, you’ll first need to configure and implement it in your organization. Navigating this process alone can take months, driving up your deployment costs and increasing your time to value.
That’s why it’s a good idea to partner with Finlyte, a business solutions provider committed to optimizing financial visibility and promoting efficiency. We can expedite your Oracle NetSuite configuration and deployment using our proprietary solution, ION, which was developed specifically to meet the needs of firms in the financial community.
Schedule a consultation with our team today to learn how Finlyte can leverage ION to help you solve V/C accounting challenges and get set up on the NetSuite platform.
