Not to be outdone by 2025’s public stock markets, private stock valuations are about to go up. We can thank the new draft AICPA guidance. A new approach to secondary transactions and liquidation preferences is likely to increase the valuations of some common stock.
The market approach is very popular in valuation. One simply multiples a financial metric, e.g., revenue or EBITDA, by a market multiple. For example, with 5.0x EBITDA multiple, a company with $10 million in EBITDA is worth $50 million. Comparable publicly traded companies or transactions (the “comparables”) provide the multiples.
AI may not catch up with valuations for purchase accounting very soon. We can credit changing best practices and a steady flow of non-authoritative guidance. They always bring fresh considerations and new calculations to explore. Yet, there are real practical implications for clients to consider.
Stock pickers believe they can value assets better than the market. The research shows otherwise. The financial accounting rules don’t play around and require observable transaction values to be the primary indicators. This topic is relevant for most privately held security valuations, including broad fair value issues, IRC 409A valuations, portfolio valuations, and tax.
Neither “Safe” nor “Simple,” these Simple Agreements for Future Equity are convertible debt instruments that are often misunderstood and hard to value.
Creating shareholder value is the goal of most for-profit entities, where value is viewed in a strictly financial sense. In the world of startups and VCs, this means maximizing exit valuations. That exit valuation number is of fundamental importance. Exit valuations are built over time. Thus, tracking valuations is critical. Companies have many opportunities to
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