How can I best track a venture capital investment in Quicken?

Question

I have invested in several venture capital funds that are each expected to last about 10 years.

It's been a few years in now and the way I have been doing it so far is to record the investment (let's say $10.000 with $2,000 taken off the top as "commissions" as a purchase of 8,000 shares with an initial share value of 1 and cost basis of 10,000.  The periodic distributions I have generally coded as dividends, and when I get an updated market value each quarter I have adjusted the share price accordingly.

This might be fine if the investment was going on "forever" but it's only 10 years and now I am getting some sizable distributions (on some of the investments) that are definitely a return of capital and my procedure now has me showing a share price of less than $1 which is not representative of what is happening.

I looked at the return of capital category but wasn't sure how to use it.  Theoretically I think I want to figure out the "share price" before a big distribution and then consider that a return of capital plus a capital gain distribution and then reduce my number of shares accordingly.  The return of capital option doesn't say anything about shares and I wasn't sure what to do with the (optional) cost basis.

Thank you for any suggestions!  I am using Quicken Classic Premier for Windows, currently version R64.35, build 27.164.35

q_lurker · Answer

A Return of Capital transaction deposits cash in the account and deducts that amount from the basis of the shares.  If there are several lots of the share holding, the RtrnCap amount is deducted from each lot in proportion to the share count.  The only purpose I have seen for the (optional) Market Value field of the RtrnCap is for the Investment Performance Report and related Average Annual Return calculations.  That MV value is saying the market value of the basis that was returned to you had a current value $X.xx.  Normal circumstances would be that if 3% of the basis was handed back to you, the market value of that would be 3% of that days closing market value.  I only use that MV field for very select cases allowing the default value of basis value in most cases.

I am not clear why you are reluctant to see the current price of the share go below $1.  Suppose you invested $1 in a VC package and they back two startups - 40% to one and 60% to the other.  Down the line, they sell off the smaller for three time the original investment and distribute the full $1.60 to you as $0.40 RtrnCap and $1.20 profit (income, dividend, whatever you and they call it).  Your basis is now $0.60 but that second company has done OK, but not great.  Your share is worth $0.80.  You are up 33% on that part of the VC package.  Life goes on.

On a simple case, I am not sure I see a need to sell or remove shares for the distributions you are mentioning, but I may be oversimplifying.  (I am not a VC investor, so I am not speaking from experience).