In 2025, the foreign exchange (FX) markets have become a central (and often uncomfortable) part of the venture capital conversation. For years now, currency exposure has been viewed as a back-office issue: something to reconcile post-transaction or manage with ad hoc spreadsheets. But today, volatile FX markets and global capital deployment are forcing change. FX risk is no longer a technical nuisance to brush aside; it's a strategic concern that finance leaders have brought into the boardroom.

With VC firms operating in increasingly international portfolios and capital moving across borders – from LP commitments to startup exits – even small currency fluctuations pose a risk to fund performance, carry, and the investor experience. So, it should come as no surprise that forward-thinking CFOs and finance teams are rethinking their approach to FX.

FX volatility: a strategic concern for VC

Venture capital has always been a global business. But in 2025, this global reach carries a new kind of risk. Whether it's a seed-stage investment in Southeast Asia, a Series B fundraise in Europe, or an exit from a Latin American unicorn, VC firms are exposed to currency risk across a growing range of transactions.

The difference today is that FX markets are more unpredictable than ever.

A confluence of divergent central bank policies, geopolitical instability, and global inflationary pressures has led to significant currency swings. Emerging market currencies have seen double-digit moves within months. Even major currency pairs like EUR/USD and USD/JPY are moving with a volatility not seen in a decade. Over the past 18 months, we’ve seen major currencies shift by 5-10% in extremely short timeframes.

The impact is real. A 10% drop in the local currency can wipe out months or even years of value creation, particularly when funds report in USD but invest abroad. Internal rate of return (IRR) is directly at risk, especially in a world where capital efficiency and returns are under increasingly sharp scrutiny.

And yet, many funds are still handling FX the same way they did a decade ago — being reactive rather than proactive, moving money manually, or simply hoping the swings average out. It’s a risky game that most can’t afford to be playing.

You can’t time the market (but you can plan for it)

“We’ll hedge when the rate looks better.”

We’ve all heard this refrain before. But it’s an approach that misunderstands how FX management actually works. Attempting to time the market is a reactive, costly and, quite frankly, foolish strategy. By the time the “right” rate appears, the opportunity has usually passed.

Instead, leading firms are shifting toward proactive FX risk management, adopting structured policies and embracing tools that protect against downside without having to outguess the market. The goal isn’t to profit from FX fluctuations – it’s to prevent them from eroding returns.

Think of it this way: you wouldn’t delay portfolio insurance until after a market crash. So FX shouldn’t be any different. Managing exposure is about discipline, not prediction (unless you’ve got a really accurate crystal ball).

From the back office to the boardroom

Finance leaders in VC firms are stepping into more senior and strategic roles – and FX risk is part of the conversation that they are bringing to the boardroom.

CFOs are no longer just reporting exposure; they’re shaping firm-wide policy around currency risk. From capital calls and fund structures to exit timing and investor distributions, FX is now a recurring topic in investment committees and even at the partner level.

This shift is driven partly by necessity. Limited partners (LPs) are asking more sophisticated questions about FX exposure, particularly as global allocations increase. But it’s also driven by opportunity: firms that understand and manage FX risk well can demonstrate financial maturity, improve performance, and strengthen their operational narrative.

Managing management fees

Management fees are the lifeblood of a VC firm’s daily operations, funding essential costs like salaries, rent, and other overheads. However, when a fund’s committed capital is in one currency and its operating expenses are in another, budgeting quickly becomes unpredictable.

You may know the exact figures for your management fees and costs — but only in their respective currencies. What you don’t know is:

• Where exchange rates will be next week, next month, or next year

• How much those fees will actually be worth when converted

• How much cash you’ll have on hand — and in what currency

A simple quarterly currency conversion won’t cut it. In today’s volatile markets, exchange rate swings of 10% or more can dramatically impact your operating budget. To avoid this kind of uncertainty, you need built-in protections from day one that help stabilise cash flow and shield your operations from FX risk.

More than returns: investors expect discipline and accountability

As capital becomes more discerning and LPs demand greater accountability, financial discipline has become a defining feature of top-tier VC firms. This, of course, includes how you approach currency exposure.

Investors are increasingly asking:

• What FX risk are you exposed to across this fund?

• What’s your hedging policy?

• How do you manage currency when exiting investments abroad?

A vague answer or reactive approach will send investors running. In contrast, a structured, well-communicated FX policy shows control, foresight, and alignment with institutional best practices. In some cases, it can be the difference between closing a fund and facing hard questions in diligence.

Bound’s top tips: what finance leaders can do today

So how should CFOs and Heads of Finance in VC respond? Here’s a framework to help you get started.

1. Map your FX exposure

Start with a currency audit that identifies:

• Where capital is raised (e.g., USD, EUR)

• Where it’s deployed

• Where returns are expected

Don’t just track current positions; model future flows, especially exits and portfolio company fundraising needs.

2. Implement a clear FX policy

Define how you’ll manage FX risk:

• When do you hedge?

• What instruments do you use?

• Who is responsible for execution and oversight?

This isn’t about bureaucracy. It’s about clarity and consistency.

3. Educate internally

Help partners and deal teams understand how currency impacts returns and value. Collaborate with portfolio companies that operate globally to ensure they’re not blindsided by FX moves.

4. Use technology and partners to your advantage

Don’t try to build it all yourself. Work with FX risk management platforms (we know a good one…) or treasury advisors who understand the nuances of private markets and fund structures. Many now offer automated tools that integrate with fund cash flow planning and capital calls.

FX risk: a strategic edge in 2025

The most successful VC firms in 2025 will be those that treat FX not as a technical headache but as a strategic lever. They’ll understand that volatility isn’t going away and that avoiding downside is just as valuable as chasing upside.

For finance leaders, this is an opportunity to lead from the front. FX policy isn’t just about protecting returns; it’s about building resilience, demonstrating sophistication, and earning investor trust.

So don’t wait for the next market swing to start the conversation. Bring FX risk into the spotlight—your LPs, partners, and future self will thank you.