When it Comes to Valuation Policies, Go Big

With transparency becoming an increasingly essential part of the private equity world, it certainly holds true to valuation policies. When limited partners look at the market, they want to see how a company operates.

“If [limited partners] are going to invest in your company, they’re going to ask to see that valuation policy because LPs are in the forefront of trying to understand how you’re marking to market because, obviously, they have their money to allocate and they look to asset allocations,” says Kevin Vannucci, a partner at RSM US LLP. “That’s why fair value is so important.”

Being robust in terms of your valuation policy does a couple of things, according to Richard Brekka of Second Alpha Partners. It saves time later on when doing the audit. And, it saves money. “The less time we have to spend with our auditors, the less they get to charge,” he says.

There are a lot of outside forces pushing on a valuation that were not there in the past. This, consequently, floods investors with data points, many of which are bad, says Max Wolff of Manhattan Venture Partners. Therefore, having a robust strategy with valuations allows firms to defend why they are not pushing towards publicly quoted prices or the latest news story, he says—which has really changed the venture space in the past few years.

You can watch a clip here:

Watch the full video or download the transcript here, in which the three experts further discuss forming and following valuation policies and the trends that are making the topic of valuations more urgent and challenging than ever.