How Venture Capitalists Keep Tabs on the Investments
Venture capital (VC) companies add a lot more value to the companies that they invest in than just capital. They have a huge amount of experience in the industry and have their fingers on the pulse of the latest trends that impact your company. Successful VCs are also very connected to many, many people in the industry. They can provide you with strategic partnerships that help you leverage your success.
The venture capitalist’s role in your company
Although a VC does not manage your company on a day-to-day basis — that’s your job — she will attend your regular board meetings on a schedule ranging from monthly to quarterly. Some VCs get in touch as often as weekly to make sure that things are going well.
In addition, the VC firm will periodically ask for information and offer a helping hand when needed. VCs help companies in a variety of ways, ranging from coaching the CEO through challenging issues to making introductions to key contacts in the industry and recruiting key employees.
Behind the scenes: VCs and their investors
In addition to working with your company, a VC also has to manage the accounting of the fund itself. Key tasks include
Timing the collection of money for the fund: When a VC raises a fund, she doesn’t just collect a bunch of checks and put them in a savings account. Instead, investors make commitments to invest certain amounts, and when the VC is ready to invest in a company, she’ll call for capital, and the investors will write actual checks to the VC.
The VC collects more than just the investment amount. She also charges a management fee, typically of 2 percent of funds under management, to cover her operating costs as well as the investments she makes.
Working with outside auditors: VC funds are typically audited by outside CPAs as a way to ensure investors that their funds are being used properly and according to the limited partnership operating agreement.
Tracking when and how much money is invested and returned to investors: VCs provide this information, which can include interim valuations of companies before they reach a liquidation event, to investors, who need it for their own tax reporting.
Regularly communicating with investors: VC firms provide regular updates to their limited partners and hold annual or quarterly meetings so that investors can ask questions and be kept up to date on the activities of the fund.