Audit and Accounting Guide: Investment Companies

Appendix C Venture Capital, Business Development Companies, and Small Business Investment Companies

This appendix is nonauthoritative and is included for informational purposes only.

This appendix provides information for venture capital investment companies, small business investment companies (SBICs), and business development companies (BDCs). See the section titled “Definition and Classification” in chapter 1, “Overview of the Investment Company Industry,” of this guide for definitions of these types of investment companies.

Venture capital investment companies, including most SBICs and BDCs, differ from other types of investment companies. The typical open-end or closed-end investment company is a more passive investor, whereas a venture capital investment company, SBIC, or BDC is more actively involved with its investees. In addition to providing funds, whether in the form of loans or equity, these types of investment companies often provide technical and management assistance to their investees as needed and requested. That assistance is provided for maximizing the overall value of the investment rather than for other benefits. The portfolio of a venture capital investment company, SBIC, and BDC is typically illiquid by the very nature of the investments, which are usually securities with no public market. Often, interest, dividends, and gains on those investments are realized over a relatively long holding period. The nature of the investments, therefore, requires valuation ...