What Is Fund Accounting in PE and VC? A Beginner’s Guide

Published date:  17 March 2025   |  5-Min Read

Private markets have grown rapidly over the past decade, with private equity (PE) and venture capital (VC) leading the charge as dominant asset classes for institutional and sophisticated investors. While the two share some similarities, their structures, strategies, and accounting needs are distinctly different. 

If you’re new to fund finance or navigating the world of alternative investments, understanding the nuances of PE and VC accounting is essential. This guide breaks down the basics of how these funds operate, how they differ, and how fund accounting supports their success. 

VC and PE funds differ significantly in how they enter and exit investments: 

• VC Funds often invest in rounds: Seed, Series A, B, and so on. These stages are tied to company milestones (e.g., MVP launch, market entry, scaling). 

• PE Funds typically perform leveraged buyouts (LBOs) or growth equity deals, acquiring substantial control and driving value through operational changes, M&A, or market expansion. 

In both fund types, capital is committed upfront by Limited Partners (LPs) and drawn down over time through capital calls. However, the cadence and structure differ: 

• PE funds have more predictable drawdowns and distributions, often timed with acquisitions, exits, or recapitalizations. 

• VC funds have irregular capital calls, driven by opportunity and startup needs. 

Investors in PE typically expect steadier returns, while VC investors look for asymmetric upside (e.g., 1 or 2 unicorns driving the fund’s success). 

While both PE and VC funds rely on core fund accounting principles, the operational demands vary: 

Private Equity Accounting: 

• Tracks complex ownership structures, debt financing, and portfolio performance. 

• Requires waterfall modeling, IRR tracking, and detailed investor allocations. 

• Often involves multi-entity consolidations and diverse reporting requirements. 

Venture Capital Accounting: 

• Manages frequent rounds, convertible notes, SAFEs, and cap table changes. 

• Focuses on fair value measurement of early-stage investments. 

• Requires agile reporting for follow-on investments and markups. 

In both, fund accounting ensures that investor capital, fees, distributions, and valuations are recorded accurately and reported transparently. 

What is the difference between PE and VC in fund accounting? 

PE deals with mature assets and often uses complex debt and distribution structures. VC manages early-stage assets, cap tables, and evolving valuations. 

Do PE and VC funds use the same accounting systems? 

Not always. They may share similar software, but custom configurations are needed for each strategy’s workflows and reporting. 

Why is fund accounting important for private markets? 

It ensures accurate capital management, fair investor allocations, regulatory compliance, and credible fund performance tracking. 

Private equity and venture capital may sit under the same alternative investments umbrella, but they function in very different ways. From capital deployment to valuation practices, their accounting needs require specialized knowledge, processes, and platforms. 

By understanding the fundamentals of PE and VC fund accounting, managers and investors alike can make smarter decisions, meet compliance demands, and focus on value creation.