The Valuation of Early Stage Enterprises: A Fair Value Update
BVR's Webinar Series
Tuesday, December 18, 2018
10:00am-11:40am PT • 1:00pm-2:40pm ET
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- Definition of “early stage enterprise” based on the stages of development described in the AICPA Guide
- Definition of fair value under ASC 820 and how it relates to the definition of fair market value under IRC
- List of key sources for the most recent guidance on valuation of early stage enterprises and provide some insight in the context surrounding the recent activity in this area (AICPA, FASB, IVSC)
- Review of basic valuation models
- Overview of the state of the venture capital industry in the US based on the latest data
- Discuss exit multiples, IRR expectations, dry powder available for investment and set up a background for the valuation discussion that follows
- Valuation of ESE – Initial Measurement
- Definition of unit of account
- Definition of Transaction Price and discussion of when a transaction can be considered “at arm’s length” and be used to provide a basis for valuation
- Definition and treatment of transaction costs. What is included in the transaction price as measure of fair value?
- Introduction to calibration
- Practical example of how a calibration model is set up
- Inputs in the calibration model at inception
- Allocation to determine value of individual shares
- Valuation of ESE – Subsequent Measurement – Calibration
- Practical example of how a calibration model can be applied to subsequent measurement
- Review of inputs, conditions under which inputs need to be updated, how to conduct a market analysis for comparability
- Issues in comparability for ESE. DLOM and tax considerations
- Valuation of ESE – Subsequent Measurement – Asset Accumulation Method
- Definition of asset accumulation method
- AICPA perspective
- Discussion of applicability for entities with key intangible assets
- Practical example of how the AAM model can be applied to an ESE
- Practical example of how to value a sample intangible asset (patent) using real option modeling and how that can become the basis for the enterprise valuation
- Challenges in the implementation of real option modelling
- Describe the provisions in the AICPA Guide on the Valuation of Portfolio Investments of Venture Capital and Private Equity Funds and Other Investment Companies as they apply to Early Stage Enterprises
- Create a calibration model based and how to apply calibration in subsequent measurement periods
- Apply the asset accumulation method to the valuation of an early stage enterprise where the valuation is driven by key intangible assets
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