How fund administration supports scaling-up venture capital operations

Challenges of scaling up venture capital operations

Before we get into how fund administration can enable more efficient scaling, let’s first look at three major operational challenges that many venture capital firms face as they expand their operations.

Increased fund complexity

Scaling a venture capital operation usually includes either launching more funds, managing larger funds, or structuring funds in increasingly complex ways. All these changes add operational strain to the firm.

• Increased number of funds: Managing multiple funds, each with its own investment focus, lifecycle, and mandate, creates a higher administrative burden. More funds require more resources to ensure each operates smoothly and in line with its objectives.
• Larger funds: Bigger funds demand more disciplined capital deployment, enhanced reporting, and a stronger internal team to manage investor relations.
• Complex fund structures: Specialized funds, such as region-specific funds, co-investment vehicles, and special purpose entities (SPEs), introduce additional layers of governance, reporting, and compliance obligations.

Regulatory burdens increase

Growth venture capital firms also tend to increase their exposure to regulatory scrutiny. For example, crossing certain AUM thresholds can trigger mandatory filings with relevant regulators like the SEC. Additionally, more investors mean more Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance work.

International expansion adds additional complexity to regulatory requirements. Firms must follow varying regulations, such as tax codes, disclosure rules, and securities laws, in each jurisdiction where they operate. Staying on top of all regulatory obligations can be quite challenging.

Growing LP demands for transparency

Limited Partners (LPs) are increasingly expecting greater transparency and more comprehensive reporting from General Partners (GPs) in the private equity industry. They want more frequent, detailed, and transparent reporting, not just during fundraising rounds, but throughout the fund lifecycle. This includes timely capital account statements, NAV updates, performance metrics, and ESG disclosures. 

Meeting these heightened expectations for an increased number of investors and funds can be challenging without the proper mechanisms and support in place. 

The good news for VC firms is that these challenges are manageable. One of the most effective solutions is leveraging professional fund administration services.

What is venture capital fund administration?

Venture capital fund administration involves outsourcing back-office tasks to a specialized third-party firm. Essentially, the third-party, known as a fund administrator, takes over the day-to-day operational or administrative tasks, such as fund accounting, investor reporting, and regulatory compliance, that VC firms would otherwise need to manage in-house.

How fund administration helps scale venture capital firms

Fund administration plays a crucial role in supporting firms during periods of expansion by managing the increasing demands of back-office functions. For example, they can provide support in several key areas, including the following.

Streamlining capital call and distribution processes

Fund administration automates and organizes the capital call and distribution workflow, ensuring that these transactions are executed seamlessly and on time. This reduces the manual workload on VC firms, mitigates the risk of errors and improves the overall experience for investors.

Enhancing LP reporting and transparency

Fund administration provides the necessary infrastructure to ensure that all limited partners (LPs) receive timely, accurate, and consistent reports on their investments. Such transparency fosters trust and confidence among investors and helps maintain strong, ongoing relationships as the firm scales its operations.

Supporting regulatory compliance and governance

Fund administrators ensure that VC firms meet all regulatory obligations as they scale by managing the necessary filings and documentation. They handle KYC and AML checks and maintain proper records on these. In addition, fund administrators closely monitor changes in the regulatory environment and advise firms on any changes they might need to make to ensure compliance.

Why outsourcing fund administration makes strategic sense

According to a 2024 Ocorian survey,  99% of private equity, venture capital, and real estate fund managers globally plan to increase outsourcing over the next three years, with nearly half (46%) targeting a 25–50% increase in outsourced functions.

Besides helping firms overcome some of the operational complexities that come with scaling, outsourcing fund administrations offers several other significant advantages.

Cost savings

Building an in-house fund administration team requires significant resources, including hiring specialized staff, investing in technology, and training employees to keep up with changing regulations. As a firm grows, the costs associated with maintaining this infrastructure can quickly add up. 

Outsourcing to a third-party fund administrator like Alter Domus, allows VC firms to leverage professional services and technology without the overhead of managing these functions internally.

Access to specialized expertise and evolving best practices

Outsourcing gives VC firms access to professionals who are highly experienced in private fund structures and up to date with the latest regulations, best practices, and financial technologies. This ensures higher accuracy and professionalism across key fund activities, including accounting and investor reporting.

Freeing internal teams to focus on core investing activities

Perhaps one of the most significant benefits of outsourcing fund administration is that it frees internal teams to prioritize sourcing, evaluating, and managing investments. 

By offloading the time-consuming and often complex administrative tasks deal teams can dedicate their expertise and energy to identifying promising investment opportunities and actively supporting their portfolio companies. This ensures that the core value-creation activities of the VC firm remain the central focus.

Alter Domus: A partner in venture capital fund administration

If you’re looking for a fund administration partner that offers deep industry expertise, great flexibility, and tailored solutions to support your growth, Alter Domus could be a good fit.

Here’s what you can expect when you partner with Alter Domus:

Comprehensive fund accounting:

Expert management of fund accounting, including investment tracking, valuations, waterfall and carried interest calculations, and much more.

Investor reporting:

Detailed and transparent reporting to keep your investors informed about the performance and health of their investments and the fund in general..

Capital call and distribution processing:

Streamlined management of capital calls and distributions to ensure accuracy and timely execution.

Regulatory compliance support:

Comprehensive guidance on meeting regulatory requirements and maintaining compliance across different jurisdictions.

Tech-driven solutions:

Integration of advanced fund administration solutions designed to automate workflows, enhance operational efficiency, and provide real-time transparency.

Full fund lifecycle management:

End-to-end support, from fund formation through to exit, with tailored services to ensure smooth operation at all stages.

Audit support:

Comprehensive audit assistance, including the preparation of relevant documentation and coordination with auditors to ensure a smooth audit process.

Wrapping up: How venture capital fund administration supports growth 

Fund administration plays a key role in the growth of venture capital firms by providing the structure and expertise needed to manage increasing operational demands and complexity. It takes care of administrative tasks like fund accounting, investor reporting, and compliance management, which frees internal teams to focus on what matters most: identifying high-potential investments and driving growth.

With deep industry knowledge and a commitment to excellence, Alter Domus is the ideal venture capital fund administration partner to help streamline operations and support your firm’s growth. Explore Alter Domus venture capital solutions and fund administration solutions to learn more.