What If Your Valuation Process Could Improve your IRR? Fair value is normally seen as a financial reporting exercise. Something that needs to be done for the accounts, the auditors, and the LPs. But perhaps we are missing something. What if the process of determining fair value could actually help VCs make better investment decisions? There are some relatively simple ways of looking at the value of a venture investment: • Cost • Last Price Per Share (LPPS) from the most rece

There's been a lot of noise of late about IPEV-based VC fair value. Although it may seem like a huge effort to take on, at its heart, the idea is relatively simple: Understand the investment, understand what has changed, and use that change as the basis for determining what it is worth today. VCs already possess much of the knowledge needed to do that. They know why they invested. They know the company. They know what needs to go right, what could go wrong, and what has chan

When we make a venture investment, we're looking forward. We have a view of what this company could become. What needs to happen. What could go wrong. How big it could get. How long it might take. And ultimately, what a successful outcome could look like. In its simplest form, we're forming a view on three things: The probability, timing and potential size of an exit. Let's call it PTSE™ (trademark pending 😄). There's nothing particularly new about it. In many ways, it's wha

There are two distinct stages in the venture valuation process, and they often involve different players. Stage 1: The Qualitative Assessment - Milestones and Calibration This is primarily the domain of the deal or investment team. They are closest to the company. They attend board meetings, speak with management and receive regular updates. They know what was expected at the time of the last financing and what has actually happened since. This is where milestones and calibra

In a previous article, (linkedin.com - the Hardest Stage in Venture Capital Fair Value) I discussed what I believe is one of the hardest challenges in venture capital fair value: valuing a company that has not raised capital for a considerable period of time. But behind that challenge lies a broader question: What are we actually trying to understand when we value a venture-backed company? At its core, a venture investment is based on a journey. A company starts with an idea