Over the past few months, public markets have been more volatile than any time in recent memory.1,2 In light of market volatility, historical transactions may no longer be valid indicators of a company’s current value. That’s why Carta created a free calibration tool to estimate the changes in your portfolio companies’ values quickly and in bulk.
Calculating calibrations in a spreadsheet can be time consuming and prone to human error. Carta’s new calibration tool takes care of the calculations for you, so you can estimate valuation changes in a few clicks. All VC firms that have accepted securities on Carta have access. Login to try it.
Calibration can help you:
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Estimate the changes in portfolio company valuations in bulk
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Identify which portfolio companies need an in-depth ASC 820 valuation
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Give your LPs a heads up based on estimated changes
How calibration works
First, select the portfolio companies whose values you’d like to estimate in bulk. With the free tool, you can estimate the value of up to twenty companies at a time. While most companies’ valuations may trend in one direction, the calibration tool takes each company’s individual performance and industry under consideration when estimating value.
In the private markets, company values are ideally determined by a recent, arms’ length, negotiated transaction. If such a transaction isn’t available, it’s possible to calculate the private company’s value by comparing it to those of similar publicly traded companies. This means that when the value of public companies change, the implied value of comparable private companies may also change.
Let’s take a look at a fictional company called Meetly to explain how calibration works. Let’s say that Meetly is a private company that raised a new round of financing at a $200M post-money valuation on September 30th, 2019.
On that date, Meetly’s last twelve months (LTM) of revenue was $22.5M. That gave Meetly an implied revenue multiple of 8.89x in September. This placed its value near the 50th percentile compared to public companies in its industry.
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Meetly’s last round closed on September 30th, 2019 |
Operation |
Number |
|---|---|---|
|
Implied revenue multiple |
= |
8.89x |
Calibration helps you quickly estimate Meetly’s new implied valuation, given today’s market conditions.
To do that, you’ll need to consider its LTM revenue today along with how Meetly has performed relative to its plan. In this example, let’s say Meetly largely met its quarterly plan, coming in at 98% of expected revenue for Q1 2020. With that performance in mind, the same cohort of investors would likely still value Meetly at the median of the public companies in its industry.
Even though Meetly met expectations, multiples in Meetly’s industry declined between the close of its financing and our calibration date, May 19, 2020. While Meetly’s revenue multiple is still at the 50th percentile of its public company comparables, that median multiple is now 8.71x, down from 8.89x in September. Applying the median multiple to Meetly’s LTM revenue as of May 19, 2020 results in a calibrated value of $191.6M.
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Meetly’s estimated valuation on May 19th, 2020 |
Operation |
Number |
|---|---|---|
|
LTM revenue May 19th, 2020 |
$22,000,000 | |
|
Calibrated multiple |
x |
8.71x |
|
Current estimated value |
= |
$191,620,000 |
Comparing the result to the initial post-money valuation of $200M, the calibration model suggests that Meetly’s value has decreased by $8.4M since September.
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Meetly’s estimated asset impairment |
Operation |
Number |
|---|---|---|
|
$200,000,000 | ||
|
Estimated asset impairment |
= |
($8,380,000) |
Carta’s calibration tool takes care of the calculations automatically. Log in to estimate changes in portfolio value in seconds.
Who can use the calibration tool
Any VC firm who has accepted a preferred certificate on Carta can use the free tool when they log in. If you are a member of a VC firm and do not have access to the calibration tool, reach out to our support team.
Calibration was included in the AICPA’s recently released guidance for fund valuations, FASB ASC 820. Read more details on valuations here.
What’s next
If your firm is audited, and you estimate that portfolio companies’ valuations have changed significantly, you’ll need an ASC 820 valuation.
Carta’s team of experts can help. Reach out to our team to learn more about our ASC 820 valuations.
DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta, Inc. (“Carta”). This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.
