Valuation – Portfolio Investments
Valuation – Portfolio Investments is somewhat of an esoteric post, even for us. However, it represents a unique resource in a very difficult area, the valuation of privately held debt and equity investments in private companies held by venture capital [“VC”] and private equity [“PE”] firms. These types of resources have long been available to and used by VC and PE firms for the analysis of venture-funded high technology [principally SaaS software] and biotechnology investments. By contrast, the valuation of privately held, and pre-IPO legal cannabis businesses [with several rare exceptions] is perhaps best described as a “shit show”. Therefore, my reasoning in taking the time to pull this material together is to provide high-quality resources to anyone in the cannabis industry that:
a. Has the time, motivation and interest to read through the materials with the goal of improving their skills in the valuation of privately-held investments. and
b. Provide a framework for the evaluation of the valuations prepared by the buyers and sellers of these businesses.
The following is from the introduction to the materials provided by the AICPA. At the end of the article, there is a link where you can access the materials if they are otherwise behind a paywall requiring AICPA membership or other access restrictions.
The AICPA’s Financial Reporting Executive Committee (FinREC) has issued working drafts of two new case studies from the AICPA Accounting and Valuation Guide Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (the Guide). New Case Study 4A, Value Fluctuations in a Real Estate Investment Financed with Debt, illustrates real estate specific valuation considerations as well as the impact of mortgage debt valuation on the equity value of a real estate investment. The other case study, new Investment 6, Investment in Non-Performing Distressed Debt, will be added to Case Study 13, Business Development Company with Various Debt Investments. These new case studies were developed in response to feedback received on the working draft of the Guide which was originally released on May 15, 2018.
Along with the new case studies, FinREC has also re-released the working draft of the Guide. Please note, however, that the Guide working draft is being re-released not for the purpose of soliciting feedback on the entire Guide, but to provide context for the new case studies.
We are looking for your informal feedback on these new case studies. All comments will be kept confidential and will not be posted on the AICPA Web site. If you would like to provide comments, please e-mail them to Yelena Mishkevich at [email protected] by January 14, 2019. FinREC and the PE/VC Task Force that developed these new case studies are looking forward to hearing from you.
Please note that these new case studies will undergo thorough editorial review before they are finalized and included in the final Guide. As such, when commenting, please do not worry about editorial issues.
The working draft of the Guide (which is being provided for context only and not to solicit feedback) is split into two documents (Part I [chapters 1-14] and Part II [appendices A-C and Glossary]). Note that the Task Force considered all feedback received on the working draft of the Guide during the comment period that ended on August 15, 2018, and has made edits to address this feedback. These edits will be incorporated into the final version of the Guide but are not incorporated into the Guide working draft presented here. The Guide working draft presented here is identical to the version released on May 15, 2018.
Valuation – Portfolio Investments