Two Stages. Different Players. One Fair Value.

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 calibration become so important.

At the last calibration point:

• What did we believe needed to happen next?

• Has the company achieved those milestones?

• Is revenue developing as expected?

• Has the product progressed?

• Have key hires been made?

• Has the next financing materialised?

• Has the competitive environment changed?

And importantly, the investment team does not look at the company in isolation.

They see other companies in the portfolio. They see new deals coming across their desks. They experience the financing market first hand. They know what is getting funded, on what terms, and where sentiment has changed.

They are therefore uniquely positioned to answer:

What has changed since our last calibration point, and what does that tell us about the company today?

Stage 2: The Quantitative Assessment - Translating That Judgement Into Fair Value

This is often where the finance or valuation team takes over.

They bring a different expertise.

Their role is to take the qualitative assessment and determine how it should be reflected in the valuation.

Questions include:

• Does the methodology remain appropriate?

• How should the company's progress, or lack of progress, affect the assumptions?

• What does the new information mean for the probability of different outcomes?

• How should optionality be reflected?

• Is an OPM, PWERM, CVM or another methodology now appropriate?

At its core, the role of the valuation team is clear:

Translate judgement into value.

Neither stage works particularly well without the other.

The valuation team cannot recreate the accumulated knowledge of the people who have been in the trenches with the company.

And the investment team's qualitative judgement still needs to be translated into methodology, assumptions and ultimately a supportable fair value.

Two stages. Different players. Different expertise. One fair value.