RECAP: Ipreo Venture Spring Event
On April 11, 2017, Ipreo hosted the inaugural Ipreo Venture Spring Event at the Rosewood Sand Hill in Menlo Park, CA. Attended by more than 80 members of the VC community, including auditors, finance professionals, and valuation experts, this event took an in-depth look at audit questions, pitfalls and misconceptions that create challenges for firms tasked with accurately determining the value of their portfolio companies.
A series of four sessions presented a range of auditor and CFO perspectives on venture audits, an update from the AICPA Task Force, a deep dive into the top audit methodologies, and news of an exciting pilot project with SVB to enhance the portfolio collection process and to establish benchmarking data.
This panel, moderated by Brett Suchor, Managing Director, Ipreo Venture, brought together Nina Labatt, CFO and Administrative Partner, Trinity Ventures; Amy Berliner, Partner, Andreessen Horowitz; Maggie Baker, Partner, Ernst & Young; and Tom Ciccolella, Partner, PwC.
The group agreed that the ASC Topic 820 audit and valuation process has now reached “steady state,” due primarily to strong collaboration between auditors, VC finance, and the valuation community. Over time, the understanding between these groups has evolved, and now, after they have all been through eight or more audit cycles, the expectations on all sides are fairly clear.
The biggest lesson learned during these early years is the importance of starting the audit/valuation process early in the season, and flagging any potential issues up front. This allows the audit team ample time to undertake the due diligence required to get comfortable with the valuation and the underlying assumptions.
When the panel looked to the near future, they predicted that the audit review process will become even more streamlined as the underlying processes and the level of coordination between participants become seamless.
AICPA Task Force Update
This session was hosted by Bharat Kanodia, Director of Valuations, Ipreo, and featured Raymond Rath, who is the Managing Director at Globalview Advisors and a member of the AICPA Task Force on Portfolio Valuations. Since 2013, the 16-member task force, which includes industry representatives, the Big 4 auditors, the valuation community, and academia, has been focused on providing guidance for the valuation of PE and VC portfolio companies.
Rath reported that the task force is on track to complete an official guide by Q4 2018. Far more detailed than the existing guide, the new version is designed to be a standalone guide specifically for Topic 820 valuations. Key topics will include calibration, back-testing, and factors to consider at or near a transaction. The complete guide will include more than 20 examples and is projected to be more than 800 pages long.
The task force invites members of the venture capital community to provide comments and suggestions on the exposure draft, which is to be released on August 2017.
2016 Year-End Numbers Deep Dive
Kanodia led participants through a detailed review of best-practice methodologies for valuations. He confirmed that larger sectors are seeing more valuations using the backsolve or OPM methodologies than the market approach or an approach that blends all of these methods.
He also pointed out that the time to exit (TTE) for private companies has consistently increased over the last three audit cycles, which confirms that private companies are expecting to stay private longer these days.
The median DLOM across all sectors is between 18% and 20%, which is in line with auditor expectations.
When it comes to allocation, OPM is the dominant method, used in over 70% of valuations across most sectors. However, CSE and CVM are catching up.
Regression is still the preferred method for selection multiples, but is on the decline. The use of median is the second most preferred selection method.
Ipreo / Silicon Valley Bank Partnership
Steve Allan, Head of SVB Analytics, and Brett Suchor, Managing Director, Ipreo Venture, shared news about a partnership between SVB Analytics and Ipreo that will look to provide a solution to the venture community comprised of Ipreo and SVB products & services. A key goal of this pilot program is to address the pains with data collection from the portfolio companies and streamlining that process. Another main component of this offering will provide the VC and PE community with benchmark data on portfolio companies. This benchmarking initiative, which will create a data set “for the community and by the community,” will enable the investment community to make investment decisions based on historic KPI and performance metrics.
The joint team is currently working on a pilot program that includes more than 15 investment firms and 200 portfolio companies. The program kicked off in Q1 2017, and is projected to conclude in Q1 2018. For more information on and updates on this initiative, please email firstname.lastname@example.org.
The Ipreo Venture Spring Event was an opportunity for the growing number of venture firms who have joined Ipreo’s client community to connect with one another and benefit from the value of the “network effect”, the diversity of experience and insight that our clients share with one another at these events.
Our next event is the Ipreo Fall Valuation Event, which will examine the latest guidelines and pointers for the 2017 year-end audit. If there are topics that you would like to discuss at the next event, please email us at Venture@Ipreo.com.
We are continuing to expand our range of networking and information-exchange sessions, so stay tuned!