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2© 2013 National Association of Certified Valuators and Analysts

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Lorenzo CarverMS, MBA, CPA, CVA

IN 90 MINUTES™

Valuation of Privately‐Held‐Company Equity Securities Issued as Compensation;Accounting and Valuation Guide Final Revisions to the 2004 Guide Released In June 2013

Published by the American Institute of Certified Public Accountants

© 2013 National Association of Certified Valuators and Analysts

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One trillion dollars in private company

value


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General solicitation ban ended July 9th

2013


Improved differentiation PE/VC practices

More examples and specific recommendations

New section on secondary market transactions


VC Typically have lots of company poised to rapidly grow new markets (revenue), but little or no earnings before interest, taxes, depreciation, and amortization (EBITDA)

PE funds typically have just a handful of companies, but almost all promise EBITDA growth



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“Why is Dropbox worth more than four billion dollars?”


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Where did Forbes really get “$4 Billion” From?


© 2013 National Association of Certified Valuators and Analysts 11

“Soon after, Dropbox raised $250 Million. Putting its value at over $4 billion. ”

$250 Million÷ X% (assumed % of company purchased-FDS)≈ $3.75 Billion Pre-money + $250MM ≈ $4.00 Billion Post-money value


Where did the Economist get “$4 Billion” From?

Basic Math


Basic Math

1) The closer to total equity value (on investment value standard) as a company gets, the closer they become to an internal public offering (IPO) candidate

2) The further from total equity value a company is, the further they are form an IPO

3) Further company is from an IPO, special rights of preferred securities have more impact on minority interests in common stock


More Involved Math

Use last round price as input

◦ This has already been done for years by valuators before the AICPA recommendation, and for decades by investors

“Back-solve” last round price to get total equity value indication

◦ Valuators have been doing this for a while, but most investors don’t believe in this methodology (and many finance teams don’t agree with it)


More Involved Math

Use last round price as input:◦ This has already been done for years by valuators

before the AICPA recommendation, and for decades by investors

“Back-solve” last round price to get total equity value indication:◦ Valuators have been doing this for a while, but most

investors don’t believe in this methodology (and many finance teams don’t agree with it)


At AICPA Backsolve Other Preferred is Worth Less Than Series B


Current Method – All Equal @ Post Money


With Higher Volatility, Assumed OPM Gets Closer


Focus of practice aid is on minority, non-marketable interests:◦ Should consider standards and levels of values

derived from primary inputs in this context

“Back-solve” emphasized more…◦ Every complex capital structure private company

valuations should (at least) run this calculation if an auditor is expected to review conclusions/indications presented by the valuator

Larger goal of reconciling market participant indications of value still far from solved


•Free Version: (of the draft aid – E&Y site)

•Paid Version: (final aid – AICPA site)

•Interactive Version of DropBox Example: (iTunes Appstore – CrunchMyCap –iPhone/iPad – Authored by Me - Free)

•NACVA Valuation Webinar Week

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