The cycle of innovation in the U.S. ecosystem is driven, in part, by the dynamic flow of capital among limited partners, traditional, corporate and growth equity venture capital investors, entrepreneurs, and, in the event of a public offering or acquisition, retail investors and companies. Limited partners (LPs), whose ranks include foundations, endowments and pension funds, invest in venture capital funds to put capital to work growing innovative young companies.
As part of their capital commitment, LPs require audited financial statements that report the fair value of venture capital firms’ portfolio company investments. Assessing fair value presents a considerable challenge to both auditors and the Chief Financial Officers and Administrative Partners at venture capital firms, who are responsible for the preparation of quarterly and annual financial statements of the funds. More often than not, portfolio companies do not yet have proven business models or technology, making it difficult to precisely state their current fair value using traditional financial metrics.
Since 2003, the National Venture Capital Association’s CFO Task Force has been actively engaged in bringing increased efficacy and efficiency to the fair value reporting and auditing process. Today NVCA, in conjunction with the CFO Task Force, sent a letter to the Public Company Accounting Oversight Board (PCAOB) outlining the challenges that exist with current auditing methods, defining our shared goals with the PCAOB and providing our recommendations to improve fair value reporting.
The CFO Task Force is made up of CFOs and Administrative Partners of almost 100 of NVCA’s member firms. They are responsible for the financial statements of hundreds of venture capital funds and many aspects of the back office operations of their firms
Download the NVCA’s full letter to Public Company Accounting Oversight Board.