Legal & Compliance
GAAP
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Quick Answer
Generally Accepted Accounting Principles — the standard accounting framework required for audited financial statements in the US.
GAAP (Generally Accepted Accounting Principles) is the standardized accounting framework mandated by the SEC for US public companies and commonly used by private companies for audited financial reporting. For VC-backed startups, GAAP becomes important as they grow and approach institutional investment — large Series B/C investors and growth equity investors often require GAAP-compliant audited financials. Key GAAP concepts relevant to startups: revenue recognition (ASC 606 — when can you recognize SaaS revenue), stock-based compensation (ASC 718 — options and RSUs must be expensed), and fair value measurements (ASC 820 — how VCs mark portfolio investments). GAAP metrics often differ significantly from non-GAAP metrics that companies use to communicate with investors (excluding stock compensation, restructuring charges, etc.).
Related Concepts
Further Reading
ARR: What Annual Recurring Revenue Means in Venture Capital
ARR (Annual Recurring Revenue) is the single most-watched metric in SaaS venture capital. Here's exactly what it means, how it's calculated, what benchmarks matter, and why VCs obsess over it.
Venture Capital Fund Administration: What It Is, Who Does It, and Why It Matters
Fund administration is the operational backbone of every venture fund — handling NAV calculations, capital calls, LP reporting, K-1s, and compliance. Here's what emerging managers need to know before they raise.
When and How to Mark Up Portfolio Companies
Learn when and how to mark up portfolio companies in a VC fund — covering ASC 820 standards, key triggers, sizing methodology, and what LPs expect from your valuation policy.
Valuation Policy for Venture Funds: ASC 820 Compliance Guide
A practical guide to building an ASC 820-compliant valuation policy for venture funds — covering governance, methodologies by stage, LP reporting, and common mistakes emerging managers make.
Frequently Asked Questions
What is GAAP in venture capital?
GAAP (Generally Accepted Accounting Principles) is the standardized accounting framework mandated by the SEC for US public companies and commonly used by private companies for audited financial reporting.
Why is GAAP important for startups?
Understanding GAAP is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does GAAP fall under in VC?
GAAP falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
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