AICPA sets ASC 820 guidance, which is part of the Financial Accounting Standards Board’s (FASB) Generally Accepted Accounting Principles (GAAP) guidance. As a venture capital firm, you need to follow these guidelines.
To help improve consistency across ASC 820 valuations, FASB released final guidance in August 2019. For those of us at Carta, the most interesting takeaways from the guidance are:
Market participant perspective: The guidance suggests that when determining how the Company has performed over time, you should consider the metrics that market participants or investors considered relevant in the most recent transaction when investing. Additionally, once you have arrived at the fair value of your investment, you should consider whether a market participant would truly invest in the Company at fair value as of the valuation date.
Discounts (control and marketability): The guidance suggests incorporating some qualitative judgement into discounts for control and marketability.
Backtesting: When your fund experiences a liquidity event, the guidance suggests circling back and comparing the actual price per share with the most recent calculated FMV. This practice is meant to identify any areas of your valuation policy that may need to be revisited.
The best way you can insure your ASC 820 valuation is done properly is to choose a reputable and experienced provider, like Carta. In addition to ASC 820 valuations, Carta also offers products and services like fund administration.
DISCLOSURE: This communication is being sent on behalf of Carta Valuations, LLC, an affiliate of eShares, Inc. dba Carta, Inc. (“Carta”). Certain transactional fees may apply. This communication is not to be construed as legal, financial 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.