ASC 820 valuations: Methodologies
Choosing accurate and appropriate methodologies for an 820 valuation is dependent on the specifics of each company and each fund’s valuation policy. Factors that influence methodology selection include a company's funding history, historical and projected financials, timing to a liquidity event, and other factors. The following are common methodologies accepted by the AICPA Practice Aid:
Post-money method: This methodology takes the price paid in the most recent financing multiplied by the number of common stock equivalents.
Subject company transaction or “Backsolve” method: This methodology consists of examining the values of prior equity transactions of the portfolio company.
Guideline public company method: This methodology relies on an analysis of publicly traded companies similar in industry and/or business model to the portfolio company. This methodology uses guideline companies to develop relevant market multiples using metrics such as revenue, and/or earnings before interest, taxes, depreciation and amortization (EBITDA). These multiples and values are then applied to your company’s corresponding financial metrics.
Guideline company transaction method: This methodology relies on an analysis of transactions of companies similar in industry and/or business model to the portfolio company. This methodology uses guideline companies to develop relevant market multiples using metrics such as revenue, and/or earnings before interest, taxes, depreciation and amortization (EBITDA). These multiples and values are then applied to your company’s corresponding financial metrics.
Income approach: The income approach focuses on the income producing capability of your company, and is commonly known as a discounted cash flow analysis. Carta's Portfolio Valuations tool supports this methodology — see Portfolio Valuations to get started.
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