#16 Quarterly Valuation Time!

Gm crew! Remember, you can’t spell “fund finance” without “FUN” :)!

Welcome to the new members of @TheFundCFO crew! Every [week] or so (#goals), we’ll bring you actionable tools, real-world experiences, and insider insights for #VC CFOs and fund managers, #LP investors, and general industry enthusiasts/people who want to learn :).

Share this on Twitter or LinkedIn to help grow the crew! Or check out our prior newsletters and insights here. We appreciate you!

Meme of the week :)

PE/VC Quarterly Valuations - The TLDR

For 12 years (since 2010), I’ve been a participant in PE/VC valuations, every quarter (that’s almost 50 reps)! Why?

Private equity and venture capital firms are required to value their portfolio of investments quarterly. Those values are published on a schedule of investments (SOI) that is shared with investors and establishes the value of the PE/VC investment fund.

Sounds easy, right? Not exactly! PE/VC investments aren’t publicly traded stocks (liquid assets), where a price is set every day by buyers and sellers. When you look at your stock portfolio, you know how much it is worth at the end of the day. Not here.

PE/VC investments are illiquid assets (similar to real estate). That means they can’t be sold quickly and/or a price isn’t set by market participants every day. Say you invested in a company 2 years ago - is that investment worth what you paid for it, more, or less? The answer is that “it depends!”

In early-stage VC, companies are young, still developing their products, and often “pre-revenue.” Investors hope big revenues will come in the future but they aren’t there yet! Contrast that with later-stage VC or PE investments. These companies are more mature and have better “comparable companies” to help determine a “fair” value. Different company stages and types require different approaches. 

PE/VC funds have legal obligations to their investors and are supported by outside accounting and auditing firms. Each quarter, funds are required to work with legal, accounting, and audit to determine appropriate valuations for their portfolio.

Resources & Next Steps

There isn’t a one-size fits all approach to quarterly valuations! It is driven by where you invest (early vs. late-stage, etc.), the asset type, and your investor, legal, accounting, auditing requirements, and other factors.

Given the complexity and nuances, we wanted to share a few of our favorite resources for further reading and insights:

• “Valuing a Venture Capital Portfolio” by Fred Wilson

  • Be Conservative

  • Get Ahead of Market Pullbacks

  • Never Mark Higher Than Potential Sale Value

  • Take Total or Partial Write-Downs in Advance of Problems

  • Have Multiple Sets of Eyes on the Marks

• “Accounting & Auditing Standards” by the NVCA

• “IPEV Valuation Guidelines” & “IPEV Valuation Guidelines” (Detailed)

• “SEC Modernizes Framework for Fund Valuation Practices”

That’s all for today folks! Thanks for your support and for spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”