Insights from Aumni, J.P. Morgan, and BDO panel on private market valuations

Valuations are a cornerstone of fund management and financial reporting in venture capital and private equity. However, the current market landscape is fraught with volatility and uncertainty, making accurate valuations more challenging than ever. Aumni, a J.P. Morgan company, and BDO hosted an event on June 12th at our San Francisco office to tackle these pressing issues, bringing together industry leaders to share their expertise and insights on navigating private market trends in valuations. 

The speakers: 

• Ashraf Hebela: Head of Startup Banking, J.P. Morgan
• Madison Sinclair: Assurance Principal, BDO
• Chrissa S. Qiu: Principal, Valuation & Capital Market Analysis, BDO
• Damian Wille: Executive Director, Strategy & Corporate Development, J.P. Morgan
• Frank Amoroso: Executive Director, Venture Relationships, J.P. Morgan

Key takeaways from the event

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1. Increased scrutiny and frequency of valuations amid market conditions: Market uncertainty has led to delayed funding and exits for portfolio companies, prompting investment firms to consider multiple scenarios and their impact on portco business models. While many venture capital firms may not conduct quarterly valuations, market volatility and increased scrutiny on venture valuations is leading funds to perform more frequent fair value determinations, especially for later-stage companies. Panelists discussed that some funds are even beginning to incorporate market approach methodologies almost immediately after a primary financing for late-stage companies to account for market considerations. 

2. Secondary transactions and fair value: Secondary transactions are on the rise as investors seek liquidity, but relying solely on these transactions as indicators of fair value can be misleading. While trades can provide helpful data points, it’s essential to understand the context around the secondary trade and consider alternative valuation methodologies to supplement secondary trade inputs to fair value determinations. The quality of secondary markets data is crucial, and firms must vet data sources to ensure the data can be relied on for valuation processes. Our audit and valuations panelists also spoke about emerging draft guidance from the American Institute of Certified Public Accountants (AICPA) that provides a framework for incorporating secondary market transactions in fair value determinations. Watching for the final guidance will be important for finance teams.

3. The role of alternative data sources: There is a growing need for centralized data sources to inform valuations, playing a key role in increasing transparency in cases where managers may not have information rights in portfolio companies. Private market aggregated data, such as the Venture Beacon Report and Aumni Market Insights, is being used by firms to layer in alternative data and ground valuations in private market trends. This approach allows firms to draw conclusions and make judgments based on data versus vibe. 

4. The impact of AI on valuations: AI is playing an increasingly significant role in valuations, with the ability to assist in extracting data from financial documents and summarizing information. While AI can help cut down on time spent digesting information, human input remains essential for interpreting data, especially in complex scenarios involving capitalization and waterfall structures where data accuracy is important. 

So, how should venture CFOs think about valuations?

Venture CFOs can adopt a data-driven approach to valuations, utilizing real-time data and reviewing investment strategies and valuation policies with their audit partners. Tightening regulatory compliance and market volatility are leading managers to incorporate more data-driven and consistent valuation practices to bring transparency to their reporting. Because of this, more funds are investing in tools and services to manage valuations internally or using specialists for many later-stage, high-concentration holdings.

As the industry continues to evolve, firms can embrace data-driven strategies and collaborate with experts to ensure accurate and reliable valuations. Discover how Aumni can support your firm’s private market valuations.