NVCA Today

Several issues affecting venture capital firms have kept the NVCA CFO Task Force busy since early July. Each of these proposed rule changes could have impaired the way venture capital firms raise money, report to their LPs, or hold portfolio company stock. The NVCA CFO Task Force worked closely with NVCA staff and counsel to draft, vet, and file the appropriate response. In each of these cases, a proposal was made by the Securities and Exchange Commission (SEC) or the Financial Accounting Standards Board (FASB) and an exposure document was published for comment.

Working subgroups of the NVCA CFO Task Force helped NVCA respond constructively and effectively. Talking points and key arguments were made available to CFOTF member firms so they could comment individually when appropriate. On one issue, NVCA member firms asked their LPs to comment also. Recent experience shows that especially with FASB, a user of financial statements, such as an LP, generally is more carefully listened to than the preparer of financial statements, i.e. venture funds. That is, the additional cost and burden of generating additional data is not as compelling an argument as the fact that the data is not value-added to the end user.

The four comment letters recently filed relate to:

• The ability of LPs to accept  the NAVs presented in properly-prepared GP financial statements as  fair value for their own financials (the traditional "roll-up" concept).
• New custody rules for investment adviser client assets, including certificated securities of privately-held companies.
• Pay-for-play regulations that would prohibit the use of placement agents in marketing to public pension funds.
• Significantly increased quarterly disclosure requirements for non-publicly traded portfolio holdings in fund financial statements.

A new issue has emerged from the FASB's long running project on classifying financial instruments, such as certain preferred stock as equity vs. debt. This could affect how portfolio company investments are classified on the balance sheet and how changes in value are accounted for. Stay tuned.