Accounting & Taxes

The reply from Decile Base is not clear. Please could DecileGroup speak to this question?

I am searching for a cap table with the calculation of the ownership and that include a employee pool

Hi there, It is for our exercise in the Venture Institute cohort 4 and I was wondering if this number of 20% is something common in the usual operation of a VC? Thank you, Natacha

I'm using the Venture Capital Model, Annual forecast and was wondering how is max exposure, as a % of committed capital calculated? 

Under Back Office -> Accounting

Is there a good rule of thumb on which jurisdictions to avoid and which are okay? Canada, Ireland, Singapore, etc

The question is how public companies reflect the revaluation of their investments in startups. Do they perform their own fair value assessment of the startup, or do they use the valuation provided by the fund’s management company? What rules under IFRS or US GAAP exist for public companies regarding the valuation of investments in startups? Has anyone seen an example where Google, for instance, discloses in their explanatory notes how the value of their startup investments has changed over the reporting period? I’d like to understand whether this information can be found in public companies’ financial reports, in order to estimate possible multiples for my own startup investment.

Do GPs assess a management fee on interest collected on deposits and is it recognized by the carried interest provision as another source of fees ?

Obviously since the GP is making the Capital Call, it knows that he also needs to deposit his share of the funds, but I assume that that should be registered formally somewhere in the system and I couldn't find where. The GP does not appear in the Capital Commitment table when you use the option to make a capital call, so wondering if it gets roped in automatically.

I'm looking at an example were the “Proceeds from Sales of Investments” balance equals the “Cash and Cash Equivalents” balance, but these are supposed to be funds from a recent capital call that are temporarily in the fund's bank account as they are already committed to be transferred to portfolio companies to pay for new investments. I don't how is it possible that it got registered as “Proceeds from Sales of Investments”. Can this simply be a journal entry error?

I'm looking at an example where a fund has two investments of $25K in 5 companies (so total of $50K per company and total of $250K capital invested).  So the breakdown for each PortCo in the Schedule of Investments shows two investments of $25K in each case, with the first line of the entry showing a total of $50K and the last line only showing $25K for some reason. Can this mean that the fund is currently only holding one of the two investments and thus the last line in each PortCo entry is just showing the fund’s current balance? Here are some more details on the example I'm looking at: • Clicking on each Portfolio Company’s name, their respective “Founding Rounds” tabs seem to confirm that indeed the fund has made two $25K investments on each company. But the strange thing is that on the Schedule of Investments both investments appear with the same date (February 17, 2024) while on the “Founding Rounds” tabs they don’t (second investments are dated June 10 or June 17, 2024), which almost seems to be an error on the platform. • Since there are 5 companies in the portfolio, each with two $25K investments from the fund, that’s a total of $250K in invested capital (which is confirmed in the Fund Overview section, under “Now / Investable Capital / Invested”), but in the Balance Sheet though the “Cost of Investments” is -$125,000 ($25K times 5 investments registered at cost) which appear to indicate the fund is currently only holding one of the two investment it made on each company. • Balance Sheet also shows under “Cash and Cash Equivalents” a balance of +$115,000 (meaning $125,000 less $10,000 in Management Fees), which seems to indicate that the second $25K investment in each company hasn’t been made yet and the money is still the funds bank account. This will be unlikely if the investment dates on the Schedule of Investments were correct (February 17, 2024), but the fact that the dates on the second investments as per the “Founding Rounds” tabs is more recent (June 10 or June 17, 2024), it may be possible that the funds just haven’t been transferred to the portfolio companies yet and that’s why the last line on each portfolio company entry on the Schedule of Investments only shows one of the two investments.

I will assume that a negative balance in an assets account would only happen if the fair market value of the investment has gone to zero and thus the balance was zero less the cost of the investment. But in the example I'm looking at, in the Schedule of Investments it is clearly shown that FAIR VALUE is positive. Another option is that maybe those investments were made using SAFE notes and thus the investments are registered at cost instead of FMV because there hasn’t been a priced round on that company yet. But if that was the case, then the Cap Adjusted section should show a valuation projection using the cap defined in the SAFE notes as the valuation of the portfolio companies, and that's not the case in the example I'm looking at. The only additional option I can think of is that maybe the SAFE notes were issued without a valuation cap and thus rely on a discount to the next equity financing round, rather than a predefined cap. But in the example I'm looking at, by clicking on each Portfolio Company’s name, their respective “Founding Rounds” tabs seem to indicate that the fund holds Common Shares and not SAFE notes.

Can you select in Decile Hub whether the GP commits are to be included or not in Management Fee calculations?  I tried the following sections but couldn’t find an option to do so:  Back Office > Manage Capital Accounts > Type “GP” > Clicked on “Decile Admin” Back Office > Entity Management > Venture Institute Cohort 3 GP > Clicked “Edit” on both “General Partner” and “Fund”

The cost of investment is $25,000 and Fair Market Value is $100,000. But the unrealized gains in the report is $125,000, rather it should be $75,000.

On the Statement of Assets on Decile Hub, under Investor's Capital, I see Capital Contributions - Limited Partners. Where would GP commit show up on the financials? Would it be under Assets but not under Investor's Capital? Is there a separate line item for GP commit?

why the total cost, FMV and Unrealized Gain/Loss for each PortCo in Cohort 3 Investments do not add up? 

The current answer includes a task from the Step 2 assignment of Sprint 8 for the Venture Institute program. I'm not sure if it is there due to an error, but it shouldn't be there.

We are a VC fund considering making an investment in a PFIC and while I know there are reporting obligations during the investment period, what additional impacts are there from a tax standpoint around sale or divestment?  Should we expect to pay additional taxes? Would these be passed on to LP's or charged at the Fund level? What strategies can be taken to mitigate any impacts?

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).

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?

Need either W-8BEN or W-8IMY to be on AngelList

If so, why? If not, why not? Do you recommend cash basis accounting for operations but also having accrual in your data room for future limited partners that require reporting on GAAP standards?

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

Question edited for clarity. 

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!

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?

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), pref warrants are more valuable than common warrants or options, so what is the best way to get dollar for dollar value and not have a taxable event?  Thank you.

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 since it shows how others priced the companies in a given market/ geography/ setup.