Principles for Operating a Venture Capital Fund

To Ensure Alignment of Fund Managers and their Limited Partners


NVCA and its members are committed to promoting policies and practices that recognize the significant responsibilities venture capital firms have to their Limited Partners.  To align the interests of the managers of a venture capital firm (Fund Managers) and Limited Partners, Fund Managers should maintain appropriate financial and other controls and should employ sound reporting practices that ensure transparency and effective communication with Limited Partners.  As venture capital firms pursue initiatives and opportunities to help maximize long-term returns for investors, they recognize their ongoing obligations to all of their Limited Partners.  To that end, the NVCA has developed the following principles:

Limited Partner Relationship

  • The limited partnership agreement (LPA) is the cornerstone of the relationship between a venture capital firm and its Limited Partners. A venture capital firm commits to comply with the terms of its LPA in the conduct of the fund’s affairs.
  • In connection with its marketing and fundraising efforts, a venture capital firm will present the investment objectives, risks of the fund and information about the fund’s management team, including their track record/past performance in an accurate and complete manner.

Investment Operations

  • A venture capital firm will conduct the fund’s operations consistent with applicable laws and regulations, including regulatory reporting, insider trading and pay-to-play regulations, anti-money laundering requirements, and anti-bribery laws.
  • A venture capital firm will engage in reasonable and appropriate due diligence and legal review prior to making investments or divestments on behalf of the fund.
  • A venture capital firm will establish and maintain effective and appropriate policies and procedures and internal controls regarding the handling and safeguarding of fund assets.

Limited Partner Reporting

  • Periodic financial reports and informal communications to Limited Partners will seek to provide a timely, relevant, accurate and informative perspective on the activities and performance of the fund.
  • Reports to Limited Partners will include information regarding allocations of income or amounts paid to a venture capital firm or its affiliates (and any offsets thereto) consistent with the accounting principles specified in the LPA (e.g., US GAAP) in a transparent manner.
  • A venture capital firm will periodically determine and report the fair value of its portfolio company investments under standards set forth in the LPA (e.g., U.S. GAAP). The fair value determinations will be periodically reviewed by the fund’s independent auditor or qualified third party, or as otherwise specified in the LPA.
  • In accordance with the LPA, a venture capital firm will disclose identified conflicts of interest between the Fund Manager and the fund and will seek to mitigate inherent conflicts that exist.