VC Fair Value Is Simpler Than You Think

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 changed since they invested.

The challenge is turning that knowledge and judgement into a structured and supportable view of value.

Venture capital has two unique characteristics that shape how this is done.

They invest in early-stage companies.

There is limited financial history, no active market, and few directly comparable companies.

The value lies in what the company could become rather than what its financial statements show today.

Their companies typically have complex cap tables.

Different share classes have different economic rights: liquidation preferences, seniority, conversion, participation and other terms.

Knowing what the company is worth doesn't necessarily tell you what your investment is worth.

Once we understand those two realities, the rest becomes much more intuitive.

1. The VC is a market participant

Fair value is based on the analysis of market participants.

And the VC is one.

They understand the company, the sector, the financing environment, the risks and opportunities, and what could ultimately drive an exit.

A VC's knowledge and judgement aren't outside the valuation process, rather they are an important part of it.

2. Understand the complex cap table

Not all shares are economically equal.

The rights attached to each class determine how value is distributed between investors.

So there the question isn’t - what is the company worth?

It’s - what is the security we own worth?

With this understanding we can now take a few steps to get to Fair Value.

1. Follow the milestones

Early-stage companies don't always tell their story through revenue or EBITDA.

When VCs make an investment, they already have a view of what needs to happen for the company to create value and ultimately achieve a successful exit.

Those expectations are often expressed through milestones:

Product development. Customers. Management. Regulation. Financing. Cash runway. Commercial traction.

These are not just operational metrics. They are the building blocks of the original investment thesis.

In fact, this is one of the reasons that, under normal circumstances, transaction price is generally considered to represent fair value at the time of investment. The price reflects a transaction between market participants based on a shared assessment of where the company stands today, what milestones it is expected to achieve, and what outcomes those milestones may ultimately lead to.

Understanding progress against those milestones helps us assess whether the original investment story is strengthening, weakening, or evolving.

2. Calibrate

At the time of investment, price and expectations come together.

That gives us our starting point for calibration.

The original transaction reflected a view of the future: what milestones the company was expected to achieve, the risks involved, and the probability, timing and potential size of a successful exit.

Calibration starts by revisiting those original expectations.

Which milestones have been achieved?

Which have not?

Which have been delayed?

What has changed in the company?

What has changed in the market?

The objective is not to build a valuation from scratch.

It is to compare today's reality against the expectations embedded in the original transaction and ask:

How does progress against those milestones affect our view of the probability, timing and potential size of an eventual exit?

That is the essence of calibration.

The original transaction tells us what investors expected

would happen. Milestones tell us what has actually happened. Calibration is the process of understanding what that difference means for the probability, timing and size of a potential exit, and therefore for fair value today.

3. Choose the methodology that fits

Different stages and circumstances call for different methodologies - OPM, PWERM, CVM, or another appropriate approach.

The methodology follows the investment story, not the other way around.

Understand what fair value isn't

It isn't simply Last Price Per Share.

It isn't automatically Enterprise Value → Waterfall.

It isn't necessarily Enterprise Value → OPM.

It isn't simply marking a private company to today's public market.

Nor does fair value inherently require a third-party valuation.

Third-party specialists can add expertise and independent support where appropriate.

But the GP already possesses something extremely valuable:

Detailed knowledge of the investment and the market in which it operates.

With the right process, evidence, methodology, and governance, that judgement can be captured and supported.

So perhaps VC fair value really is simpler than we sometimes make it.

✅ Early-stage company

✅ Complex cap table

✅ Market participant judgement

✅ Milestones

✅ Calibration

✅ Appropriate methodology

Put those pieces together and fair value becomes a structured way of turning what the VC already knows about an investment, and what has changed since investing, into a supportable view of what it is worth today.