From LPPS to Institutional Fair Value: Easier Than You Think

How a structured valuation workflow makes IPEV-aligned fair value practical, efficient and valuable for venture capital funds.

Moving beyond Last Price Per Share (LPPS) to institutional-quality fair value may be considerably easier than many venture capital funds assume.

The key is not necessarily hiring larger valuation teams, building increasingly complicated spreadsheets or engaging in extensive quarterly valuation exercises.

It's adopting a structured fair value workflow (and yes, a little plug here — that's exactly what we've built VCM Software to do!) that connects the information, professional judgment, valuation methodologies and governance already involved in managing a venture portfolio.

The result can be a more efficient, consistent and defensible valuation process, aligned with IPEV, ASC 820 and AICPA guidance.

And importantly, the benefits extend well beyond financial reporting.

Why Are So Many Venture Funds Still Relying on LPPS?

Last Price Per Share remains a widely used reference point in venture capital valuations.

It's understandable why.

The price paid in a recent financing round is observable, relatively easy to establish and often represents valuable evidence of fair value. Combined with waterfall calculations, it can provide a useful starting point for determining the value of different securities.

But LPPS has limitations.

A financing round completed two years ago may no longer reflect the company's current circumstances. Market conditions may have changed. Important milestones may have been achieved or missed. Exit expectations may have evolved.

And even at the transaction date, the price of one class of shares does not necessarily represent the fair value of every security in the capital structure.

The IPEV framework provides a more comprehensive approach to these questions.

So why isn't it more widely adopted?

One possible explanation is the perception that implementing institutional-quality fair value requires considerable additional complexity, specialist resources and expense.

But much of that complexity can be addressed through a properly designed valuation workflow.

The Solution: A Structured Fair Value Workflow

Instead of viewing fair value as a collection of separate valuation models, consider it as a connected process.

Each stage builds on information and decisions from the previous stage, with technology supporting the calculations, documentation and continuity.

1. Start with the Cap Table

An accurate cap table is the foundation.

Understanding share classes, liquidation preferences, conversion rights, SAFEs and other economic rights is essential for determining the value attributable to an investment.

Once established, this information can be maintained and used directly within valuation models, rather than repeatedly reconstructed for each reporting period.

2. Assess the Company's Stage

Not every portfolio company requires the same valuation approach.

A company that has recently completed an arm's-length financing round presents different considerations from one that has not raised capital for several years.

Similarly, a company approaching liquidity may require a different approach from an early-stage business with highly uncertain outcomes.

A structured stage assessment helps identify the most appropriate valuation techniques without introducing unnecessary complexity.

3. Review Milestones and Calibrate Expectations

This is where the investment team's knowledge becomes particularly valuable.

What has changed since the previous valuation?

Have important commercial or technological milestones been achieved? Have financing expectations changed? Has the anticipated exit horizon moved?

How have these developments affected the probability, timing and size of potential exit outcomes?

Much of this information is already considered by investment teams as part of their normal portfolio monitoring.

Calibration helps ensure that changes in valuation assumptions are consistent with the available evidence and previous valuation conclusions.

The workflow provides a structured way to connect these assessments to fair value.

4. Select the Appropriate Methodology

With the company's circumstances, economic rights and valuation assumptions established, the appropriate methodology can be selected.

Depending on the investment, this may involve a calibrated transaction price, market-based approaches, OPM, PWERM or other techniques.

Institutional-quality fair value does not mean applying the most sophisticated model to every investment. It means selecting and applying the most appropriate methodology.

Technology can support this process by making established methodologies readily available, reducing the need to construct complex models from scratch.

5. Execute, Review and Approve

Once the methodology and assumptions are established, the calculations, sensitivity analysis and supporting documentation can be brought together.

A structured workflow enables the valuation to be reviewed, challenged and approved, with a clear record of the assumptions, judgments and decisions.

Importantly, this information can and should be retained for subsequent reporting periods.

The next valuation begins with an established foundation rather than a largely new exercise.

Why This Makes Institutional Fair Value More Practical

Historically, one of the obstacles to more comprehensive fair value practices has been the effort required to coordinate information, models and people.

Cap tables may sit in one system, portfolio information in another, valuation calculations in spreadsheets and approval processes in email correspondence.

A structured workflow connects these activities.

Cap table information feeds valuation models. Previous assumptions are available for calibration. Methodologies and calculations can be reused. Supporting evidence and approvals are maintained within the process.

This reduces repetitive work and helps ensure consistency across investments and reporting periods.

Most importantly, it allows valuation professionals and investment teams to concentrate on the judgments that matter, while technology handles much of the mechanics.

The transition from LPPS-based approaches to institutional-quality fair value becomes less about building an entirely new valuation capability and more about organizing and supporting an existing decision-making process.

And There's More to Gain Than Better Financial Reporting

There is another important reason for venture funds to consider this approach.

The information and analysis required for institutional-quality fair value can also improve portfolio management.

Milestone assessment and calibration encourage investment teams to revisit their exit expectations systematically.

Scenario analysis helps evaluate alternative outcomes, including the probability, timing and size of potential exits.

Waterfall analysis provides a clearer understanding of how future financing, dilution and liquidation preferences may affect the fund's ultimate proceeds.

This can contribute to decisions about follow-on investments, secondary transactions and potential exit strategies.

For example, a company may no longer offer a realistic prospect of a venture-scale exit but could still represent an attractive opportunity for an earlier, more modest realization.

A disciplined valuation process can help bring these possibilities into focus.

Fair value need not be viewed solely as an accounting obligation. It can also become a valuable component of the investment management process.

Ultimately, It's About Confidence in NAV

The individual valuations of portfolio investments underpin one of the most important numbers reported by a venture fund: Net Asset Value.

For CFOs, institutional-quality fair value provides a more structured, defensible and repeatable reporting process.

For GPs, it provides greater insight into the portfolio and confidence in the reported NAV.

For valuation specialists, it provides an organized framework for applying professional judgment and established valuation methodologies consistently.

And for LPs, it strengthens the foundation of the financial information they receive.

The industry already has the valuation principles and methodologies needed to achieve institutional-quality fair value.

What has often been missing is a practical, scalable way to implement them across an entire portfolio.

A structured fair value workflow can bridge that gap.

Moving beyond LPPS does not have to mean introducing unnecessary complexity or disproportionate cost.

With the right technology, workflow and professional judgment, institutional-quality fair value can become a practical reality and valuable tool for a much broader range of venture capital funds.

And the result is not just better valuations. It's better information, better governance and greater confidence in NAV.