10.2.6.c: Note on Valuation of Illiquid Securities

Contributing Editor: Joseph W. Bartlett of Sullivan & Worcester LLP

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Abstract

Note on Valuation of Illiquid Securities: In an attempt to improve and standardize private equity valuations, a draft proposal was presented in 1989 by an ad hoc committee[1] at a prestigious forum.[2] The committee was formed with the stated purpose of designing a methodology to "standardize portfolio company valuations and interim performance measurements so that such information would be consistently reported throughout the industry."[3] The committee recently updated and modified a number of the guidelines, in large part to incorporate comments from the industry. The proposal first sets forth the general (and presumably noncontroversial) rule that unregistered securities are "normally" to be valued at cost unless something significant has happened since their acquisition-that is, a different price in a later round of financing (defined as an arm's-length transaction by a sophisticated and unrelated new investor) or a significant change in the news (good or bad) at...

Sub-Topics

• 10.2.6.c.i: Pre-1996 Valuation Guidelines
• 10.2.6.c.ii: Updated IPEV Private Equity Valuation Guidelines