Financial Reporting, Fair Value, Valuation Guidelines for Venture Capital Firms

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The vast bulk of private, independent venture capital, growth capital, and private equity firms report fund performance to their investors using investment company accounting. Investment company accounting rules for years have required determining fair value for each investment for each reporting period, typically quarterly, and audited periodically, typically annually. Under recently-affirmed rules, the fair value of the fund as a whole generally is the sum of the individual holdings.

Effective with 2008 the financial reporting period, a more specific set of rules became effective. Originally known as FAS 157, these rules are now a part of authoritative US accounting rules Topic 820.

Midway through the 2000 decade, an independent group of industry practitioners created the PEIGG guidelines for use by US private funds in their reporting under the official rules. In December 2012, a similar but global practitioner and expert group, IPEV, issued Valuation Guidelines to be consistent with US GAAP and non-US IRFS. In May 2013, the NVCA board endorsed these valuation guidelines. By endorsing these guidelines, NVCA joins the US Private Equity and Growth Capital (PEGCC) Association, and many venture capital, private equity, and limited partner associations in North America, Europe, Asia, Africa, and Australia.

Details of the announcement, basic Q&A, and links can be found here. The complete text of the IPEV guidelines can be found here.

For additional information on convergence and international rules, please see Appendix H of the 2013 Venture Capital Yearbook.

For additional information on the long chronology of valuation guidelines, refer to Appendix I of the 2013 Venture Capital Yearbook.

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