What You Need to Know About Your Fund Administrator

Contributed by Kristen Ostro of Strut Consulting.

As a new manager, you need the right combination of resources and support to get your funds off the ground. One key partner, a fund administrator, an organization that is responsible for tracking and analyzing fund financials and helping you meet your short- and long-term goals, is essential. As with the rest of your team, you’ll want to select a fund admin that knows the ropes and can guide you confidently. Given how important the fund admin’s role is to your long-term success, it’s especially important that you choose a firm that you trust and respect.

The good news for emerging managers: There are more fund admins serving the market than ever before, so you’ll be able to find one that’s right for you. What’s more, all that healthy competition should yield competitive pricing. Read on to learn more about what you need to know to pick the right fund admin for you.

1. Fund admin must-haves.

Ideally, your fund admin is a tour de force led by CFOs and CPAs with extensive venture experience. Fundamentally, they should offer:

• A dedicated client service person or team assigned to you and your fund.
• Expert guidance and advice at every stage.
• Budget management guidance and long-term strategic planning services.
• An excellent working relationship with a best-in-class tax and audit team.

The ability to put systems and best practices in place, allowing you to be consistent over time.

2. Choosing the right fund admin.

Assuming the fund admins you’re considering meet all the criteria above, it’s time to find the one that’s uniquely suited for you. The most important criteria: a fund admin that provides the level of engagement and connection you need on a day-to-day basis.

Consider the following questions:

• How much do you care about sexy tech and tools vs. a personal connection? Do you want the slickest online platform and the best software, or are you more interested in getting lots of high-touch support?
• How involved do you want to be? Are you the in-the-trenches type, or would you be happy to let your fund admin run free so long as you get regular high-level updates?
• Are you going to have anyone, such as an in-house operations director or CFO, on staff to support, facilitate and manage the fund admin’s work? If so, how do they prefer to engage with a fund admin? (For what it’s worth, I absolutely recommend having a full-time CFO/controller or experienced venture capital (VC) operations employee on staff.)

Of course, you’ll also have to consider cost. Prices for best-in-class fund administration services range widely, from less than $10,000 to north of $100,000, depending on which services you choose from which provider. Generally speaking, the more limited partners (LPs) you have, the more complex your fund is and the more services you choose, the higher your costs will be. The good news: Fund admin fees are typically a fund expense. When you’ve come up with a list of finalists, carefully weigh the costs against the breadth, depth and quality of services provided. Ideally, you can choose the fund admin that maximizes the latter and makes the former palatable.

What costs does the fund account cover?

• Fund admin fees
• The cost of creating a professional pitch deck
• Syndication costs, which are marketing costs associated with raising a fund
• Legal expenses related to the fund, such as ongoing investments in startups
• Taxes and audit
• Fund administration costs
• Annual LP meeting expenses

3. An overview of the fund admin landscape.

As you consider what you’re looking for in a fund admin, it’s worth understanding the array of options in the marketplace, which has gone through a marked evolution over the last decade.

Take a look at how fund admin options have changed: As emerging managers flooded the market, the practicality of in-house fund CFOs and controllers went out the window. Firms like Aduro Advisors (led by former True Ventures CFO Braughm Ricke), Redbrick (led by Tony Di Bona, former CFO/GP of Alloy Ventures), Cornerstone (led by former Epic Ventures CFO Ryan Davis) and VMS (led by former AT&T Ventures CFO Dom Turiano) arose to provide best-in-class outsourced CPA/CFO services.

As these firms experienced their respective growing pains, two things happened:

• Commoditized, tech-driven options like Carta ramped up their efforts, gunning for market share with slick online platforms that incorporate real-time portfolio company data.
• Experienced CFOs and CPAs parted ways with established outsourced firms to start high-touch smaller shops like Navigation Fund Services, Audena and XFO Partners.

Amid all that action, the number of firms providing fund admin services continues to grow. Even big firms like SS&C, which historically focused on private equity and hedge funds, took notice. In the last few years, they’ve doubled down on their efforts to showcase their VC-focused fund administration services to emerging managers.

This evolution has allowed my happiest clients to have it all: They’ve engaged a full-time, outsourced fund admin and use an all-in-one platform (like Carta). With this combination they’re aiming for ease of use and minimal quality issues. So far, it seems to be working quite well.

Top-tier service providers

• • Aduro Advisors
  • Airstream Alpha
  • AngelList
  • Assure
  • Audena Consulting
  • Carta
  • Citco
  • Cornerstone Fund Services
  • Early Growth Financial Services
  • Elevate Financial Services
  • FLG Partners
  • Greenough Consulting Group
  • Kranz & Associates
  • MG Stover
  • Navigation Fund Services
  • North Mountain Fund Services
  • Partners Admin LLC
  • Ravix Group
  • Redbrick Associates
  • SS&C Technologies
  • Standish Management
  • Stonegate Fund Administration
  • The Apex Group (Broadscope)
  • Ultimus Leverpoint Private Fund Solutions
  • Verve
  • VMS
  • XFO

4. What your fund administrator handles.

Your fund admin gets into the weeds on your financials — and that’s exactly where you want them.

A fund admin typically aims to:

• Reduce cash flow issues. Fund admins help you with budgeting, both for yearend tax reporting and on a daily/monthly basis so cash flow isn’t a problem. Lines of credit from a trusted partner like Silicon Valley Bank can be helpful with cash management, but setup costs, fees and unused line fees can defeat the purpose. Your fund admin can help you determine the best approach.
• Manage capital calls to limited partners. Most funds call three to five times per year, and LPs are typically comfortable with that cadence. Figuring out how much to call also comes with a learning curve, as general partners (GPs) sometimes forget to account for one-off large expenses, tax distributions at critical times and other capital needs. A good fund administrator should be able to advise you accordingly.
• Improve management company performance. A good fund admin will help you create policies and procedures that best serve both the GP(s) and your investors. They can also help you select and onboard the best expense management Ideally, you’ll review expenses monthly (when everything is still top of mind) for optimal reconciliation and accurate reporting.
• Optimize fund management. From determining an effective recycling strategy to helping you navigate a “step down” (the moment your first fund management fees drop as you start drawing on your second fund) to managing your reserves, your fund admin can guide you to make the best financial moves at every step.
• Manage quarterly reporting. Your fund administrator is an integral part of producing your quarterly reports to In addition to handling the financial information, your fund admin can share industry insights and best-in-class examples for your GP/fund letter to investors.
• Develop appropriate valuations. A great fund admin will work with you to mark your portfolio valuations to market on a quarterly basis, with a deep dive at year-end. The goal is to take a conservative and consistent approach — one you’re able to explain and that matches the realization process.
• Prepare for taxes and audit. The very best fund admins will prepare for tax and audit time all year long. This sounds painful, but in reality is simply good back-office behavior: Your fund administrator can recommend an audit partner with whom they’ll work closely. Emerging manager-focused firms like Frank, Rimerman + Co., BDO, Sensiba and Grant Thornton tend to be a good, cost-effective option.

Developing a partnership that works

A good fund admin can be one of your biggest allies in the day-to-day financial slog. That said, if your first pick doesn’t work out or you’ve simply outgrown your current relationship, you can always switch. (The optimal moment is right after annual tax time has officially wrapped.) It may also make sense to change your fund admin at critical growth points, such as when you have multiple funds under management or significantly increase assets under management (AUM).

Whether you’re working with your first fund admin or your fifth, choose an option that offers advice, direction and support.

Partner with the right firm

Let your fund admin get you set up for success and reap all benefits this relationship can provide.

And, as you put your fund together, reach out to Silicon Valley Bank for more resources and support.

Strut is a VC consulting firm focused solely on providing operations, investor relations, and platform/portfolio service support and expertise to fund managers of all sizes. Founded in 2016, Strut aims to help fund managers accomplish more with less, allowing them to succeed at the highest level.

Additional resources for emerging managers:

• Legal, Banking and Fund Administration: Three Critical Elements for New VC Funds

Access further articles and resources on our Emerging Managers page.