FREE online courses on Venture Capital Funding - The Venture Capital Industry - Valuations

 

 

·         Like a mutual fund, each venture fund has a net asset value or the value of an investor's holdings in that fund at any given time.

 

·         This value is not determined by a public market transaction, but through a valuation of the underlying portfolio.

 

Remember that the investment is illiquid and at any point, the partnership may  have both private companies and the stock of public companies in its portfolio.  These public stocks are usually subject to restrictions for a holding period and

are thus subject to a liquidity discount in the portfolio valuation.

 

Each company is valued at an agreed-upon value between the venture firms when invested in by the venture fund or funds. In subsequent quarters, the venture investor will usually keep this valuation intact until a material event occurs to

change the value.

 

Venture investors try to conservatively value their investments using guidelines or standard industry practices and by terms outlined in the prospectus of the fund.

Early stage funds may have an even more conservative valuation of their companies due to the long life of their investments when compared to other funds with shorter investment cycles.