When your company taps into venture capital (VC) funds to build its runway, investors expect you to be diligent with every dollar. You probably want to be, too, since the more you can slow your burn, the longer you have to figure out how to make your business model profitable.
Even once your company has some traction, finding and maintaining the right partners helps you scale.
That’s particularly true when it comes to your accountant. Finding an experienced CPA firm with expertise in supporting VC-backed companies benefits you in a number of ways. If you pick the right partner, you should more than recoup the money you spend on accounting services.
Here are a few things to look for when you’re trying to pick the best CPA for your company.
Someone who’s actually a CPA
You can be an accountant — even one with lots of experience — without technically being a certified public accountant (CPA). To acquire that level of certification, the individual needs to get licensed by their state’s board of accountancy. In other words, when you choose a CPA, you’re choosing someone who has proven their expertise through rigorous testing.
On top of that, to maintain their CPA status, these professionals need to go through continuous training. As a result, CPAs stay knowledgeable about the latest accounting requirements and best practices. With ever-changing tax codes, this continuing education keeps your CPA informed so they can help your business stay compliant and well-positioned.
Someone with startup experience
Bookkeeping and financial planning are very different at a startup than at an established company. Having VC firms in the mix adds specific requirements. Plus, certain financial planning measures can optimize outcomes for you, your company, and your investors.
As a result, it’s wise to choose a CPA that has experience working with startups. When that accountant or firm has worked with other VC-backed companies, they can help you in areas like:
- Fundraising: An experienced accountant can make future rounds of fundraising easier in a few ways. First off, by reviewing your finances and projecting your company’s future, they can help you pinpoint when it’s time to start planning your next fundraising round. And once that work gets underway, they become an invaluable ally. Successful fundraising means presenting a compelling, data-backed picture to potential investors. With strong financial reporting and forecasting, your accountant helps you create a case that appeals to the type of investors you want to attract.
- Your cap table: This document — also called a capitalization table — is critical for any VC-backed company. It lays out who controls equity and how much each person or entity has. In short, it helps you keep investors organized. In this way, your cap table also delivers a measure to help you avoid diluting your equity more than is necessary. Creating and maintaining a cap table can be a fair bit of work, but an experienced CPA can handle that for you.
- Reporting to investors: Most VC backing comes with specific requirements as far as what financials get reported when and to whom. Your accountant can help you stay on top of creating the necessary documentation — and getting it into investors’ hands on the timeline they expect.
- Tax benefits: Strategic action helps your company take advantage of the many tax perks that are available to smaller American enterprises. Take the tax protections for qualified small business stock (QSBS) as an example. When you meet the requirements there, you and your investors can protect profits from sold shares from capital gains tax.
In short, a CPA who has experience with startups can offer a lot to help your company thrive. Look for an accounting partner that’s specifically strong in VC math.
Someone who can help you maximize the R&D tax credit
The perks of a startup-experienced CPA don’t stop at your and your investors’ personal taxes. There’s another area where the right accountant for a VC-backed company can help that organization see significant savings: the R&D tax credit.
While your company is in the phase when it needs to rely on venture capital support, you’re probably doing a fair bit of research and experimentation. You might still be developing your minimum viable product, or you might be iterating on it to bring new products or services to the market.
Whatever the case may be, all the money you spend there — including salaries for involved team members — can slash your tax bill. Specifically, qualified research expenses (QREs) can help you claim a federal tax credit of up to $500,000. Your state may have additional tax perks for your R&D activities, too.
The caveat here is that claiming and maximizing federal and state R&D tax credits means careful record-keeping. The IRS requires businesses to substantiate their QREs. You can’t just say that an engineer spent about half of their time on research activities, for example. You need time tracking to provide evidence for your tax savings.
The right CPA will help you pinpoint what activities might qualify for this tax provision, along with steps to help your business generate the necessary records. Then, they can manage all of the paperwork required to file for this significant tax benefit.
Someone who offers more than tax support
While a good CPA is a critical asset for any company’s tax filings, your accountant should do more than help at tax time. The right partner will help you monitor your company’s financial health and best plan for a successful future.
They should provide regular financial records to help keep you and your investors informed. Then, they should regularly go over the numbers so they can spot trends, pinpoint opportunities, and help you avoid pitfalls. They can even help you develop financial processes and your fintech stack.
The right CPA for your VC-backed company will help you steer the ship in the right direction. They serve as a part of your team, keeping work off your desk while highlighting growth opportunities. They can also interface with your investors, helping to satisfy both their requirements and their curiosity about your company’s current financial standing.
If you want to talk with a team of CPAs with experience supporting VC-backed companies on their way to success, contact us.
Disclaimer: The content provided on this blog is for general informational purposes only and does not constitute professional accounting, tax, or legal advice. Reading or accessing this material does not create a CPA-client relationship, nor should it be construed as a substitute for individualized guidance from a qualified professional. While we strive for accuracy, Shay CPA PC makes no warranties—express or implied—about the completeness, reliability, or timeliness of the information, and we expressly disclaim liability for any errors or omissions. You should not act or refrain from acting based on any blog content without seeking the advice of a qualified CPA or other professional who can address your specific circumstances. Links to external resources are provided for convenience only and do not imply endorsement. Shay CPA PC is under no obligation to update this content and disclaims responsibility for decisions made in reliance on it.