Venture Capital Fund Accounting: NAV, Fair Value, and Audits

Venture capital fund accounting is the system a VC fund uses to track each limited partner's money from the first capital call to the last distribution. Instead of measuring profit, it keeps a capital account for every LP, carries investments at fair value, allocates fees and gains, and runs the distribution waterfall. For an LP, the quarterly capital account statement is arguably the most important document you will receive.

Definition: Venture capital fund accounting is partnership accounting for an investment company: it records contributions, allocates income, expenses, and realized and unrealized gains to each partner's capital account, and reports portfolio holdings at fair value under US GAAP.

Most of it is mechanical. The part that isn't, the marks, is where we'd spend your attention.

This guide is written from the investor's side. If you are new to how funds are organized, limited partner vs general partner is a good place to start.

How venture capital fund accounting differs from company accounting

A startup's books ask whether the business is making money. A fund's books ask how much of the fund belongs to each partner right now, and why. Three features make that its own discipline.

Partnership capital accounts. Carta's guide to fund accounting describes each partner capital account as a sub-ledger that tracks that LP's contributions, share of profits and losses, and distributions. The LP's balance represents its share of the fund's net asset value (NAV). Add up every partner's balance and you get the fund's NAV.
Investment company rules. VC funds that prepare US GAAP statements generally apply FASB ASC 946, the topic for investment companies. In practice, holdings are carried at fair value rather than historical cost, and the statements include a schedule of investments. Deloitte's summary of ASC 946 notes that nonregistered investment partnerships must separately disclose each investment worth more than 5 percent of net assets.
Fair value for illiquid assets. Carta notes that ASC 820 requires funds to report private, illiquid investments at fair value. With no quoted price, funds estimate value from recent financing rounds, company performance, and market comparables. These are typically the judgments auditors test most closely.

The core records and reports

Most funds hire a fund administrator, but the GP remains responsible for the books, usually through a controller or the portfolio operations seat set out in a portfolio manager job description. An LP can typically expect:

Partner capital account statement (PCAP). Quarterly. Shows your beginning balance, contributions, your share of fees and expenses, realized and unrealized gains, distributions, and ending balance.
Schedule of investments (SOI). Every portfolio company, cost basis, and current fair value.
Statement of operations. Income, fees, expenses, and gains for the period.
Balance sheet and cash flow statement. Cash on hand, investments, payables, and any credit line balance.
Schedule K-1. Your annual tax allocation from the partnership. K-1s depend on information from portfolio companies and often arrive late, so plan for the possibility of extending your own return.
Audited annual financial statements. ILPA's Principles 3.0 recommend that funds deliver audited financials, with a clean opinion, within 90 days of year end.

The ILPA reporting templates. In January 2025 ILPA released version 2.0 of its Reporting Template (fees, expenses and carried interest), its first update since 2016, plus a new Performance Template (IRR and TVPI or MOIC, gross and net, with and without subscription lines).

The two run on different clocks. ILPA says the Reporting Template replaces the 2016 version for funds still in their investment period during Q1 2026 and for funds commencing operations on or after January 1, 2026, with first delivery for the Q1 2026 reporting period (so after March 31, 2026). The Performance Template applies only to funds commencing operations on or after January 1, 2026: GPs capture cash flows from Q1 2026, and ILPA's Performance Template guidance puts the first delivery four full fiscal quarters after a fund starts, which in practice means after March 31, 2027. Ask new managers whether their quarterly package follows them.

Fair value marks: where the judgment lives

Unrealized gains drive most of a young fund's reported performance. That makes the marks the numbers we'd read hardest. A typical valuation policy starts from the latest priced round, then adjusts for later events: a missed plan, a round on different terms, a down round, or a wind-down.

Questions worth asking any GP:

Is the valuation policy written down, and does the fund follow it every quarter?
Who approves the marks: the deal team, a valuation committee, or an outside provider?
How are SAFEs and convertible notes valued before they convert?
Is a higher round with heavy structure (large liquidation preferences) marked at the headline price?
How did prior marks compare with actual exit values (backtesting)?

A fund that marks aggressively can report an attractive multiple long before any cash comes back. So read unrealized value next to distributions. The guide to venture capital fund performance metrics covers how to separate the two.

"But the auditor already checks the marks"

Partly true, and it matters. An annual audit tests the valuation policy and how it was applied, and auditors do push back on marks they can't support. For many LPs, a clean opinion from a known firm is a reasonable place to start.

But in our view, an audit tells you the process was followed. It doesn't tell you a company will be worth its mark at exit. Two funds can both get clean opinions while one marks every up round at the headline price and the other discounts for structure. The difference shows up years later, in distributions. That's why we'd still ask the five questions above.

Fees, expenses, and allocations

Management fees and fund expenses reduce every LP's capital account in proportion to commitment. Carta's Fund Economics Report 2025 (December 2025) puts the median VC management fee at 2 percent during the investment period and median carry at 20 percent. It found that 81.9 percent of venture funds on Carta step down fees at least once after the investment period ends.

Operating expenses in the first five years ran about 3.4 percent of fund size for funds of $1M to $10M, versus about 1 percent for funds above $100M. Small funds carry a heavier fixed cost per dollar, which is worth knowing before you commit to one. It is also a reminder of how fees and carry pull a manager in different directions as funds grow.

The limited partnership agreement (LPA) says which costs are fund expenses (audit, tax, legal, administration, insurance) and which the management company absorbs (salaries, rent). Check the statement of operations against it at least once a year.

The distribution waterfall and carry accruals

When a portfolio company exits, the fund accountant runs the waterfall defined in the LPA. The usual sequence:

Return of capital to LPs.
Preferred return (a hurdle), if the LPA includes one. In venture most do not: Carta found hurdles in 9.5 percent of funds of $1M to $10M and 12.4 percent of funds above $100M.
GP catch-up until the GP has its full carry share.
Carried interest split, typically 80 percent to LPs and 20 percent to the GP, in line with Carta's 20 percent median carry.

Two structures are most common. A whole-fund (European) waterfall pays carry only after LPs get back all contributions (plus any preferred return) across the fund. A deal-by-deal (American) waterfall can pay carry on early winners before losses are known. ILPA's Principles 3.0 call the whole-of-fund model best practice.

Between exits, most funds show an accrued carry line: the carry the GP would earn if the portfolio were sold at current marks. It is not cash, and it can reverse. The venture capital carried interest guide explains clawbacks in detail.

Worked example: one LP's capital account

As an illustration, assume a $20M seed fund with a 2 percent fee on commitments, 20 percent carry, a whole-fund waterfall, and an 8 percent preferred return. You committed $1M, so you own 5 percent of every allocation.

In year one the fund calls $4M, invests $3.4M in ten companies, and pays $400K in management fees and $60K in expenses. One company raises a new round that values the fund's $300K position at $900K.

Line item	Fund total	Your 5% share
Contributions	$4,000,000	$200,000
Fees and expenses	($460,000)	($23,000)
Unrealized gain	$600,000	$30,000
Ending capital balance	$4,140,000	$207,000

Your TVPI is about 1.04x ($207K divided by $200K). Your paper profit is 3.5 percent, below the 8 percent hurdle, so no carry accrues yet. Without a hurdle, the fund would accrue 20 percent of its $140K paper profit, or $28K, of which $1,400 comes out of your account, leaving you at $205,600 (about 1.03x).

Either way, all of your gain is unrealized. One mark on one company moved the whole statement.

Venture capital fund audits and SEC rules in 2026

For SEC-registered advisers, the SEC's custody rule compliance guide says a pooled vehicle can satisfy the surprise-examination requirement with an annual audit by a PCAOB-registered and inspected accountant, delivered to investors within 120 days of fiscal year end. Many venture managers are instead exempt reporting advisers, which file only part of Form ADV; see Form ADV for the filing details. Institutional LPs commonly require an annual audit regardless of registration status.

The rulebook has shifted. The SEC's 2023 Private Fund Adviser Rules would have required registered advisers to send quarterly statements and obtain an annual audit for each private fund. On June 5, 2024, the Fifth Circuit vacated them in National Association of Private Fund Managers v. SEC. The SEC confirms that the quarterly statement, audit, restricted activities, adviser-led secondaries and preferential treatment rules, and the related amendments to Rules 204-2 and 206(4)-7, are no longer in effect. On June 12, 2025, the SEC also withdrew its 2023 Safeguarding proposal, so the existing custody rule still applies. Quarterly reporting standards now come from LPA terms and ILPA's templates, not a federal rule.

To see how a working fund makes decisions before you write checks, 1752vc's Emerging Angels is an 8-week live program for accredited investors new to angel investing, with live diligence calls, deal reviews, monthly Investment Circles, and a private community. For more fund mechanics, browse the venture capital section.

LP review checklist

PCAP ties to your own records of wires sent and received.
Unfunded commitment matches your commitment minus contributions.
Fees match the LPA rate and basis (committed or invested capital).
Expenses are in categories the LPA allows.
Valuation policy is written and applied consistently.
Audit opinion is unqualified and arrived on schedule.

The bottom line

Fund accounting is mostly arithmetic, and the arithmetic is rarely where LPs get surprised. The surprises tend to live in the marks.

The capital account tells you what you own on paper.

The distributions tell you what it was worth.

Key takeaways

Venture capital fund accounting tracks each LP's capital account rather than company profit, and NAV is the sum of those accounts.
VC funds reporting under US GAAP apply ASC 946 and ASC 820 and carry holdings at fair value, so unrealized marks drive early returns.
In our view, the quarterly partner capital account statement and schedule of investments are the two reports most worth reading carefully.
The SEC's 2023 private fund quarterly statement and audit rules were vacated in June 2024, so ILPA's 2025 templates and the LPA now largely set the reporting standard.
Whole-fund waterfalls, which ILPA calls best practice, pay carry only after LPs recover paid-in capital across the fund.
Accrued carry and unrealized gains are estimates that can reverse, so it is worth comparing them with actual distributions.

Frequently asked questions

What is venture capital fund accounting?

Venture capital fund accounting is partnership accounting for a venture fund. The fund records every contribution, fee, expense, gain, and distribution and allocates each to the relevant partner's capital account. Portfolio investments are reported at fair value under the US GAAP rules for investment companies.

Do venture capital funds use GAAP?

US venture funds that issue audited statements typically use US GAAP, applying ASC 946 for investment companies and ASC 820 for fair value. Tax allocations reported on Schedule K-1 follow partnership tax rules instead, so book and tax capital accounts can differ.

What is a partner capital account statement?

It is a quarterly report showing one LP's beginning balance, contributions, share of fees and expenses, realized and unrealized gains, distributions, and ending balance. It is the LP's main record of what their fund interest is worth on paper. Comparing it each quarter with your own wire records is a simple check.

How are startup investments valued in a VC fund?

Funds estimate fair value because private shares have no market price. The starting point is usually the latest priced financing round, adjusted for company performance, new terms, and market conditions. The valuation policy and auditor review determine how disciplined those marks are.

Are venture capital funds audited?

Many are, usually because the LPA or institutional LPs require it. SEC-registered advisers can meet the custody rule by sending audited financials from a PCAOB-registered and inspected accountant within 120 days of year end. The 2023 rule that would have mandated private fund audits was vacated in June 2024, and ILPA recommends audited statements within 90 days.

Sources

Disclaimer: This guide is for general education only and is not legal, tax or investment advice. Laws, market data and program terms change, so it may not reflect the latest developments or fit your situation. Treat it as a starting point, not a source of truth, and talk to a qualified lawyer, accountant or financial adviser before you make decisions.