- 1. I N T E R N AT I O N A L P R I VAT E E Q U I T Y A N D V E N
T U R E C A P I TA L VA L U AT I O N G U I D E L I N E SThese
guidelines have been developed by the Association Franaise des
Investisseurs en Capital (AFIC),the British Venture Capital
Association (BVCA) and the European Private Equity and Venture
Capital Association (EVCA) with the valuable input and endorsement
of the following associations:AIFI - Italian Private Equity and
Venture Capital Association APCRI - Portuguese Private Equity and
Venture Capital Association APEA - Arab Private Equity
AssociationASCRI - Spanish Private Equity and Venture Capital
Association ATIC - Tunisian Venture Capital AssociationAVCA -
African Venture Capital Association AVCAL - Australian Venture
Capital Association AVCO - Austrian Private Equity and Venture
Capital Organization BVA - Belgian Venturing AssociationBVK -
German Private Equity and Venture Capital Association e.V.CVCA -
Canadas Venture Capital and Private Equity AssociationCVCA - Czech
Venture Capital and Private Equity Association DVCA - Danish
Venture Capital Association FVCA - Finnish Venture Capital
Association HKVCA - Hong Kong Venture Capital AssociationHVCA -
Hungarian Venture Capital and Private Equity Association ILPA -
Institutional Limited Partners Association IVCA - Irish Venture
Capital AssociationLVCA - Latvian Venture Capital AssociationNVCA -
Norwegian Venture Capital & Private Equity Association NVP -
Nederlandse Vereniging van ParticipatiemaatschappijenPPEA - Polish
Private Equity AssociationRseau Capital - Qubec Venture Capital and
Private Equity Association RVCA - Russian Private Equity and
Venture Capital AssociationSAVCA - Southern African Venture Capital
and Private Equity Association SECA - Swiss Private Equity and
Corporate Finance Association SLOVCA - Slovak Venture Capital
Association (Endorsement as of 1st of November 2005)
2. I N T E R N AT I O N A L P R I VAT E E Q U I T Y A N D V E N
T U R E C A P I TA L V A LUAT I O N G U I D E L I N E S W W W . P R
I VAT E EQ U I T Y VA LU AT I O N . CO M These guidelines have been
developed by AFIC, BVCA and EVCA with the valuable input and
endorsement of the following associations:AIFI, APCRI, APEA, ASCRI,
ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA,
HVCA, ILPA, IVCA, LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA,
SAVCA, SECA, SLOVCA(Endorsement as of 1st of November 2005) 3. P L
EA S E N OT E The information contained within this paper has been
produced with reference to the contributions of a number of
sources. AFIC, BVCA and EVCA have taken suitable steps to ensure
the reliability of the information presented. However, neither
AFIC, BVCA, EVCA nor other named contributors, individuals or
associations can accept responsibility for any decision made or
action taken, based upon this paper or the information provided
herein. For further information please visit:
www.privateequityvaluation.com 4. I N T E R N AT I O N A L P R I
VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G
U I D E L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N .
CO M 4 These guidelines have been developed by AFIC, BVCA and EVCA
with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) 5. I N T E R N AT I
O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V
A LUAT I O N G U I D E L I N E S These guidelines have been
developed by AFIC, BVCA and EVCA withthe valuable input and
endorsement of the following associations:AIFI, APCRI, APEA, ASCRI,
ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, DVCA, HKVCA,HVCA, ILPA,
IVCA, LVCA, NVCA, NVP, PPEA, RVCA, SAVCA, SECA, SLOVCA P R E FAC E
These Guidelines set out recommendations, intended to represent
current best practice, on the valuation of private equity and
venture capital investments. The term private equity is used in
these Guidelines in a broad sense to include investments in early
stage ventures, management buyouts, management buy-ins and similar
transactions and growth or development capital. The recommendations
are intended to be applicable across the whole range of investment
types (seed and start-up venture capital, buy-outs,
growth/development capital, etc) and financial instruments commonly
held by private equity funds. The recommendations themselves are
set out in bold type, whereas explanations,W W W . P R I VAT E EQ U
I T Y VA LU AT I O N . CO M illustrations, background material,
context and supporting commentary, which are provided to assist in
the interpretation of the recommendations, are set out in normal
type. Where there is conflict between a recommendation contained in
these Guidelines and the requirements of any applicable laws or
regulations or accounting standard or generally accepted accounting
principle, the latter requirements should take precedence. Neither
the AFIC, BVCA, EVCA nor the endorsing associations nor the members
of any committee or working party thereof can accept any
responsibility or liability whatsoever (whether in respect of
negligence or otherwise) to any party as a result of anything
contained in or omitted from the Valuation Guidelines nor for the
consequences of reliance or otherwise on the provisions of these
Valuation Guidelines. These Valuation Guidelines should be regarded
as superseding previous guidelines issued by the AFIC, BVCA or EVCA
with effect for reporting periods post 1 January 2005. 6. I N T E R
N AT I O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A P I
TA L V A LUAT I O N G U I D E L I N E S W W W . P R I VAT E EQ U I
T Y VA LU AT I O N . CO M These guidelines have been developed by
AFIC, BVCA and EVCA with the valuable input and endorsement of the
following associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL,
AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA,
LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) CO N T E N TS
INTRODUCTION7 Definitions 7SECTION I: DETERMINING FAIR VALUE9 1 The
Concept of Fair Value9 2 Principles of Valuation9 3 Valuation
Methodologies 12 3.1 General 12 3.2 Selecting the Appropriate
Methodology 13 3.3 Price of Recent Investment14 3.4 Earnings
Multiple 15 3.5 Net Assets20 3.6 Discounted Cash Flows or Earnings
(of Underlying Business)21 3.7 Discounted Cash Flows (from the
Investment) 22 3.8 Industry Valuation Benchmarks 23 3.9 Available
Market Prices 23SECTION II: APPLICATION GUIDANCE27 Introduction27 1
Selecting the Appropriate Methodology 27 2 Specific Considerations
29 2.1 Internal Funding Rounds 29 2.2 Bridge Financing29 2.3
Mezzanine Loans 30 2.4 Rolled up Loan Interest 30 2.5 Indicative
Offers 31 3 Events to Consider for their Impact on Value31 4
Impacts from Structuring33WORKGROUP 35 7. INTRODUCTION
INTRODUCTIONHowever, the requirements andand a valuation
methodology (such as implications of the Financial Reportingthe
earnings multiple technique), which Private Equity Managers may
beStandards and in particular Internationaldetails the method or
technique for required to carry out periodic valuations Financial
Reporting Standards and US deriving a valuation. of Investments as
part of the reporting GAAP have been considered in the process to
investors in the Funds theypreparation of these guidelines. This
has manage. The objective of these Guidelines been done, in order
to provide a frame- is to set out best practice where private work
for arriving at a Fair Value for equity Investments are reported at
Fairprivate equity and venture capitalDEFINITIONS Value, with a
view to promoting best Investments which is consistent withThe
following definitions shall apply in practice and hence helping
investors in accounting principles.these Guidelines. Private Equity
Funds make better These guidelines are intended to represent
economic decisions. current best practice and therefore will
Enterprise Value The increasing importance placed by be revisited
and, if necessary, revised toThe Enterprise Value is the value of
international accounting authorities on reflect changes in
internationalthe financial instruments representing Fair Value
reinforces the need for theregulation or accounting
standards.ownership interests in an entity plus consistent use of
valuation standards These Guidelines are concerned withthe net
financial debt of the entity. worldwide and these guidelines
provide a valuation from a conceptual standpoint framework for
consistently determining and do not seek to address best practice
Fair Value valuations for the type of Investments as it relates to
investor reporting, held by private equity and venture The Fair
Value is the amount for which internal processes, controls and
capital entities.an asset could be exchanged between procedures,
governance aspects,knowledgeable, willing parties in an The
accounts of Private Equity FundsCommittee oversights, the
experiencearms length transaction. are governed by legal or
regulatory and capabilities required of the Valuer provisions or by
contractual terms. It is or the audit or review of valuations. not
the intention of these Guidelines to A distinction is made in these
Guidelines prescribe or recommend the basis on between a basis of
valuation (such as which Investments are included in the Fair
Value), which defines what the accounts of Funds. carrying amount
purports to represent, 7 8. I N T E R N AT I O N A L P R I VAT E E
Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G U I D E
L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M 8
These guidelines have been developed by AFIC, BVCA and EVCA with
the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) FundMarketability
Quoted Instrument The Fund, i.e. a private equity orMarketability
is defined as the relative ease A Quoted Instrument is any
financial venture capital fund, is the generic term and promptness
with which an instrument instrument for which quoted prices used in
these Guidelines to refer to anymay be sold when desired.
Marketability reflecting normal market transactions are designated
pool of investment capital implies the existence of current buying
readily and regularly available from an targeted at private equity
Investment,interest as well as selling interest. exchange, dealer,
broker, industry group, including those held by corporate pricing
service or regulatory agency. entities, limited partnerships and
otherMarketability Discount investment vehicles.Realisation The
Marketability Discount is the consequence of the return
MarketRealisation is the sale, redemption or Gross Attributable
Enterprise Value Participants demand to compensate repayment of an
Investment, in whole or The Gross Attributable Enterprise Value for
the risk arising from the lackin part; or the insolvency of an
Investee is the Enterprise Value attributable to the of
Marketability. Company, where no significant return to financial
instruments held by the Fundthe Fund is envisaged. and other
financial instruments in theMarket Participants entity that rank
alongside or beneath the Unquoted Instrument Market Participants
are potential or highest ranking instrument of the Fund. actual
willing buyers or willing sellersAn Unquoted Instrument is any
financial when neither is under any compulsioninstrument other than
a Quoted Instrument. Investee Company to buy or sell, both parties
having The term Investee Company refers to a reasonable knowledge
of relevant factsUnderlying Business single business or group of
businesses in and who have the ability to perform The Underlying
Business is the which a Fund is directly invested.sufficient due
diligence in order to be operating entities in which the Fund has
able to make investment decisions invested, either directly or
through a Investmentrelated to the enterprise. number of dedicated
holding companies. A Funds Investment refers to all of the Net
Attributable Enterprise Value financial instruments in an
InvesteeValuer Company held by the Fund. The Net Attributable
Enterprise Value The Valuer is the person with direct is the Gross
Attributable Enterprise responsibility for valuing one or more
Value less a Marketability Discount. of the Investments of the
Fund. 9. S EC T I O N I: D E T E R M I N I N G F A I R V A LU E 1
THE CO N C E P T O F F A I R V A LU E 2 PRINCIPLESOF V A LU AT I O
N Fair Value is the amount for which an asset could beInvestments
should be reported at Fair Value at the exchanged between
knowledgeable, willing parties in an armsreporting date. length
transaction. In the absence of an active market for a financial
instrument, The estimation of Fair Value does not assume either
that thethe Valuer must estimate Fair Value utilising one of the
Underlying Business is saleable at the reporting date or that
valuation methodologies. its current shareholders have an intention
to sell their holdings In estimating Fair Value for an Investment,
the Valuer in the near future. should apply a methodology that is
appropriate in light of The objective is to estimate the exchange
price at whichthe nature, facts and circumstances of the Investment
and hypothetical Market Participants would agree to transact. its
materiality in the context of the total Investment portfolio and
should use reasonable assumptions and Fair Value is not the amount
that an entity would receive or estimates. pay in a forced
transaction, involuntary liquidation or distressed sale.In private
equity, value is generally crystallised through a sale or flotation
of the entire business, rather than a sale of an Although transfers
of shares in private businesses are often individual stake.
Accordingly the Value of the business as a subject to restrictions,
rights of pre-emption and other whole (Enterprise Value) will
provide a base for estimating barriers, it should still be possible
to estimate what amount a the Fair Value of an Investment in that
business. willing buyer would pay to take ownership of the
Investment. The Fair Value is estimated by the Valuer, whichever
valuation methodologies are used, from the Enterprise Value, as
follows: (i) Determine the Enterprise Value of the Investee Company
using the valuation methodologies; (ii) Adjust the Enterprise Value
for surplus assets, orexcess/unrecorded liabilities and other
relevant factors; 9 10. I N T E R N AT I O N A L P R I VAT E E Q U
I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G U I D E L I
N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M 10 These
guidelines have been developed by AFIC, BVCA and EVCA with the
valuable input and endorsement of the following associations:AIFI,
APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, CVCA,
DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA, NVCA, NVP, PPEA, RSEAU
CAPITAL, RVCA, SAVCA, SECA, SLOVCA(Endorsement as of 1st of
November 2005) (iii) Deduct from this amount any financial
instrumentsAs such, it must be recognised that, whilst valuations
do provide ranking ahead of the highest ranking instrument of
useful interim indications of the progress of a particular the Fund
in a liquidation scenario and taking into Investment or portfolio
of Investments, ultimately it is not account the effect of any
instrument that may dilute until Realisation that true performance
is firmly apparent. the Funds Investment to derive the Gross
AttributableFair Value should reflect reasonable estimates and
Enterprise Value;assumptions for all significant factors that
parties to an arms (iv) Apply an appropriate Marketability Discount
to thelength transaction would be expected to consider,
includingGross Attributable Enterprise Value to derive the Net
those which impact upon the expected cash flows from
theAttributable Enterprise Value;Investment and upon the degree of
risk associated with thosecash flows. (v) Apportion the Net
Attributable Enterprise Value between the companys relevant
financial instruments In assessing the reasonableness of
assumptions and estimates, according to their ranking;the Valuer
should: (vi) Allocate the amounts derived according to the Funds
note that the objective is to replicate those that the parties
inholding in each financial instrument, representing theiran
arms-length transaction would make;Fair Value. take account of
events taking place subsequent to the It is important to recognise
the subjective nature of privatereporting date where they provide
additional evidence of equity Investment valuation. It is
inherently based on conditions that existed at the reporting date;
and forward-looking estimates and judgments about the take account
of materiality considerations. Underlying Business itself, its
market and the environment in which it operates, the state of the
mergers and acquisitions Because of the uncertainties inherent in
estimating Fair market, stock market conditions and other factors.
Value for private equity Investments, a degree of cautionshould be
applied in exercising judgment and making the Due to the complex
interaction of these factors and often thenecessary estimates.
However, the Valuer should be wary lack of directly comparable
market transactions, care should beof applying excessive caution.
applied when using publicly available information in deriving a
valuation. In order to determine the Fair Value of an
Investment,Private Equity Funds often undertake an Investment with
the Valuer will have to exercise judgement and make necessarya view
to effecting substantial changes in the Underlying estimates to
adjust the market data to reflect the potential Business, whether
it be to its strategy, operations, management, impact of other
factors such as geography, credit risk, foreignor whatever.
Sometimes these situations involve rescue currency and exchange
price, equity prices and volatility. refinancing or a turnaround of
the business in question. 11. S EC T I O N I: D E T E R M I N I N G
F A I R V A LU E Whilst it might be difficult in these situations
to determine In situations where Fair Value cannot be reliably
measured Fair Value based on a transaction involving a trade
purchaser,the Investment should be reported at the carrying value
at it should in most cases be possible to estimate the amount athe
previous reporting date as the best estimate of Fair Value, Private
Equity Fund would pay for the Investment in question. unless there
is evidence that the Investment has since then been impaired. In
such a case the carrying value should be The Valuer will need to
assess whether, in the particular reduced to reflect the estimated
extent of impairment. circumstances of a specific Investment, he is
able reliably to measure Fair Value by applying generally
acceptedIn respect of Investments for which Fair Value cannot be
methodologies in a consistent manner based on reasonablereliably
measured, the Valuer is required to consider whether
assumptions.events or changes in circumstances indicate that an
impairment may have occurred. There may be situations where: Where
an impairment has occurred, the Valuer should reduce the range of
reasonable Fair Value estimates is significant the carrying value
of the Investment to reflect the estimated the probabilities of the
various estimates within the range extent of impairment. Since the
Fair Value of such cannot be reasonably assessed Investments cannot
be reliably measured, estimating the extent of impairment in such
cases will generally be an the probability and financial impact of
achieving a key intuitive (rather than analytical) process and may
involve milestone cannot be reasonably predicted reference to broad
indicators of value change (such as relevant there has been no
recent Investment into the business.stock market indices). In these
situations, the Valuer should conclude that Fair Value cannot be
reliably measured. 11 12. I N T E R N AT I O N A L P R I VAT E E Q
U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G U I D E L
I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M 12
These guidelines have been developed by AFIC, BVCA and EVCA with
the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) 3 V A LU AT I O N M
E T H O D O LO G I E S In determining the Fair Value of an
Investment, theValuer should use judgement. This includes a
detailed 3.1 Generalconsideration of those specific terms of the
Investmentwhich may impact its Fair Value. In this regard, the A
number of valuation methodologies that may be consideredValuer
should consider the substance of the Investment, for use in
estimating the Fair Value of Unquotedwhich takes preference over
the strict legal form. Instruments are described in sections 3.3 to
3.9 below. These methodologies should be amended as necessary toIt
is important conceptually to distinguish the value that incorporate
case-specific factors affecting Fair Value.may be ascribed to an
Investment from the value that may For example, if the Underlying
Business is holding surplus be ascribed to the Underlying Business.
For example, in cash or other assets, the value of the business
should reflect valuing the Underlying Business one may seek to
estimate that fact. the amount a buyer would pay for the business
at thereporting date. In valuing an Investment stake in that
Because, in the private equity arena, value is generallybusiness,
one would not merely take the relevant share of crystallised
through a sale or flotation of the entirethe businesss value, since
that would fail to recognise the Underlying Business, rather than
through a transfer ofuncertainty and risk involved in actually
selling the business individual shareholder stakes, the value of
the business as aand crystallising the Investment value, and
particularly the whole at the reporting date will often provide a
key insightrisk that value may be eroded before a sale can be
achieved into the value of investment stakes in that business. For
thisunder the current market conditions. reason, a number of the
methodologies described below involve estimating the Enterprise
Value as an initial step.The estimation of Fair Value should be
undertaken on theassumption that options and warrants are
exercised, where There will be some situations where the Fund has
littlethe Fair Value is in excess of the exercise price. The
exercise ability to influence the timing of a Realisation and
aprice of these may result in surplus cash arising in the
Realisation is not likely in the foreseeable future,
perhapsUnderlying Business if the exercise price is significant.
because the majority shareholders are strongly opposed to it. In
these circumstances (which are expected to be rare in Other rights
such as conversion options and ratchets, which private equity),
Fair Value will derive mainly from themay impact the Fair Value of
the Funds Investment, should expected cash flows and risk of the
relevant financial be reviewed on a regular basis to assess whether
these are instruments rather than from the Enterprise Value. likely
to be exercised and the extent of any impact on value The valuation
methodology used in these circumstancesof the Funds Investment.
should therefore reflect this fact. 13. S EC T I O N I: D E T E R M
I N I N G F A I R V A LU E Differential allocation of proceeds may
have an impact on it is also important to consider the stage of
development the value of an Investment. If liquidation preferences
exist, of an enterprise and/or its ability to generate maintainable
these need to be reviewed to assess whether they will giveprofits
or positive cashflow. rise to a benefit to the Fund, or a benefit
to a third party to The Valuer will select the valuation
methodology that is the detriment of the Fund. the most appropriate
and consequently make valuation Further examples of specific
matters for consideration that adjustments on the basis of their
informed and experienced may impact valuations are set out in
section II, 3 .judgment. This will include consideration of factors
such as: Movements in rates of exchange may impact the value of the
relative applicability of the methodologies used given the Funds
Investments and these should be taken in the nature of the industry
and current market conditions; account. the quality, and
reliability of the data used in each Where the reporting currency
of the Fund is different methodology; from the currency in which
the Investment is denominated, the comparability of enterprise or
transaction data; translation into the reporting currency for
reporting purposes should be done using the bid spot exchange rate
the stage of development of the enterprise; and prevailing at the
reporting date. any additional considerations unique to the subject
enterprise. 3.2 Selecting the Appropriate Methodology Where the
Valuer considers that several methodologies are The Valuer should
exercise her or his judgement to select appropriate to value a
specific Investment, the Valuer may the valuation methodology that
is the most appropriateconsider the outcome of these different
valuation for a particular Investment.methodologies so that the
results of one particular method may be used as a cross-check of
values or to corroborate or The key criterion in selecting a
methodology is that it otherwise be used in conjunction with one or
more other should be appropriate in light of the nature, facts and
methodologies in order to determine the Fair Value of the
circumstances of the Investment and its materiality in Investment.
the context of the total Investment portfolio. Methodologies should
be applied consistently from An appropriate methodology will
incorporate available period to period, except where a change would
result information about all factors that are likely materially to
in better estimates of Fair Value. affect the Fair Value of the
Investment. In this context,13 14. I N T E R N AT I O N A L P R I
VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G
U I D E L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N .
CO M 14 These guidelines have been developed by AFIC, BVCA and EVCA
with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) This may occur for
example in the case of a company3.3 Price of Recent Investment
becoming profitable and cash flow becoming positive on aWhere the
Investment being valued was itself made maintainable basis a few
years after the start-up phase.recently, its cost will generally
provide a good indication of Any changes in valuation methodologies
should be clearlyFair Value. Where there has been any recent
Investment in stated. It is expected that there would not be
frequentthe Investee Company, the price of that Investment will
changes in valuation methodologies.provide a basis of the
valuation. The table below identifies a number of the most widely
usedThe validity of a valuation obtained in this way is inevitably
methodologies. In assessing whether a methodology iseroded over
time, since the price at which an Investment was appropriate, the
Valuer should be predisposed towardsmade reflects the effects of
conditions that existed when the those methodologies that are
generally accepted and thosetransaction took place. In a dynamic
environment, changes in that draw on market-based measures of risk
and return,market conditions, the passage of time itself and other
factors since both these qualities would serve to enhance thewill
act to diminish the appropriateness of this methodology reliability
of the Fair Value estimates.as a means of estimating value at
subsequent dates. Methodologies utilising discounted cashflows and
industryIn addition, where the price at which a third party has
benchmarks should rarely be used in isolation of theinvested is
being considered as the basis of valuation, the market-based
measures and then only with extreme caution.background to the
transaction must be taken in to account. These methodologies may be
useful as a cross-check ofIn particular, the following factors may
indicate that the price values estimated using the market-based
methodologies.was not wholly representative of the Fair Value at
the time: METHODOLOGY a further Investment by the existing
stakeholders withlittle new Investment;Price of Recent
InvestmentEarnings multiple different rights attach to the new and
existingInvestments;Net assets a new investor motivated by
strategic considerations;Discounted cash flows or earnings(of
Underlying Business) the Investment may be considered to be a
forced sale orDiscounted cash flows (from the Investment) rescue
package; orIndustry valuation benchmarks the absolute amount of the
new Investment is relativelyinsignificant. 15. S EC T I O N I: D E
T E R M I N I N G F A I R V A LU E This methodology is likely to be
appropriate for all private service financial instruments, breaches
of covenants equity Investments, but only for a limited period
after theand a deterioration in the level of budgeted or forecast
date of the relevant transaction. Because of the frequency
performance; with which funding rounds are often undertaken for
seed there has been a significant adverse change either in and
start-up situations, or in respect of businesses engagedthe
companys business or in the technological, market, in technological
or scientific innovation and discovery, theeconomic, legal or
regulatory environment in which the methodology will often be
appropriate for valuingbusiness operates; Investments in such
circumstances. market conditions have deteriorated. This may be
indicated The length of period for which it would remain
appropriate toby a fall in the share prices of quoted businesses
operating use this methodology for a particular Investment will
dependin the same or related sectors; or on the specific
circumstances of the case, but a period of one year is often
applied in practice. the Underlying Business is raising money and
there isevidence that the financing will be made under
significantly In applying the Price of Recent Investment
methodology,different terms and conditions from the original
Investment. the Valuer should use the cost of the Investment itself
or the price at which a significant amount of new Investment into
the company was made to estimate the Fair Value of3.4 Earnings
Multiple the Investment, but only for a limited period
followingThis methodology involves the application of an earnings
the date of the relevant transaction. During the limitedmultiple to
the earnings of the business being valued in period following the
date of the relevant transaction, theorder to derive a value for
the business. Valuer should in any case assess whether changes or
events subsequent to the relevant transaction wouldThis methodology
is likely to be appropriate for an imply a change in the
Investments Fair Value. Investment in an established business with
an identifiablestream of continuing earnings that can be considered
to be For example, a reduction in the Investments Fair
Valuemaintainable. may have occurred for a number of reasons,
including the following: This methodology may be applicable to
companies withnegative earnings, if the losses are considered to be
the performance and/or prospects of the Underlyingtemporary and one
can identify a level of normalised Business are significantly below
the expectations on whichmaintainable earnings. the Investment was
based. Prima facie indicators of this include a failure to meet
significant milestones or to 15 16. I N T E R N AT I O N A L P R I
VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G
U I D E L I N E SW W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO
M 16 These guidelines have been developed by AFIC, BVCA and EVCA
with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) This may involve the
use of averaging of earnings figuresGuidance on the interpretation
of underlined terms is given for a number of periods, using a
forecast level of earningsbelow. or applying a sustainable profit
margin to current or forecast revenues. Appropriate Multiple In
using the Earnings Multiple methodology to estimate A number of
earnings multiples are commonly used, the Fair Value of an
Investment, the Valuer should:including price/earnings (P/E),
Enterprise Value/earningsbefore interest and tax (EV/EBIT) and
depreciation and i. apply a multiple that is appropriate and
reasonableamortisation (EV/EBITDA). The particular multiple
used(given the risk profile and earnings growth prospectsshould be
appropriate for the business being valued.of the underlying
company) to the maintainable(N.B: The multiples of revenues and
their use are presentedearnings of the company;in 3.8. Industry
Valuation Benchmarks) ii. adjust the amount derived in (i) above
for surplusIn general, because of the key role of financial
structuring assets or excess liabilities and other relevant
factorsin private equity, multiples should be used to derive an to
derive an Enterprise Value for the company;Enterprise Value for the
Underlying Business. Therefore, iii. deduct from the Enterprise
Value all amounts relating where a P/E multiple is used, it should
generally be appliedto financial instruments ranking ahead of the
highest to a taxed EBIT figure (after deducting finance
costsranking instrument of the Fund in a liquidation and relating
to working capital or to assets acquired or leasedtaking into
account the effect of any instrument that using asset finance)
rather than to actual after-tax profits,may dilute the Funds
Investment in order to derive since the latter figure will
generally have been significantlythe Gross Attributable Enterprise
Value;reduced by finance costs. iv. apply an appropriate
Marketability Discount to the By definition, earnings multiples
have as their numerator Gross Attributable Enterprise Value derived
in (iii) a value and as their denominator an earnings figure. above
in order to derive the Net AttributableThe denominator can be the
earnings figure for any Enterprise Value; andspecified period of
time and multiples are often defined ashistorical, current or
forecast to indicate the earnings v. apportion the Net Attributable
Enterprise Valueused. It is important that the multiple used
correlates to theappropriately between the relevant financialperiod
and concept of earnings of the company being valued.instruments.
17. S EC T I O N I: D E T E R M I N I N G F A I R V A LU E
Reasonable Multiplecosts associated with them which should be
reflected in thevalue attributed to the business in question. The
Valuer would usually derive a multiple by reference to market-based
multiples, reflected in the market valuations It is important that
the earnings multiple of each comparator of quoted companies or the
price at which companies have is adjusted for points of difference
between the comparator changed ownership. This market-based
approach presumes and the company being valued. These points of
difference that the comparator companies are correctly valued
byshould be considered and assessed by reference to the two the
market. Whilst there is an argument that the marketkey variables of
risk and earnings growth prospects which capitalisation of a quoted
company reflects not the value of underpin the earnings multiple.
In assessing the risk profile the company but merely the price at
which small parcelsof the company being valued, the Valuer should
recognise of shares are exchanged, the presumption in thesethat
risk arises from a range of aspects, including the nature
Guidelines is that market based multiples do correctly of the
companys operations, the markets in which it operates reflect the
value of the company as a whole. and its competitive position in
those markets, the quality of itsmanagement and employees and,
importantly in the case of Where market-based multiples are used,
the aim is toprivate equity, its capital structure and the ability
of the Fund identify companies that are similar, in terms of risk
attributesholding the Investment to effect change in the company.
and earnings growth prospects, to the company being valued.For
example, the value of the company may be reduced if it: This is
more likely to be the case where the companies are similar in terms
of business activities, markets served, size, is smaller and less
diverse than the comparator(s) and, geography and applicable tax
rate. therefore, less able generally to withstand adverseeconomic
conditions; In using P/E multiples, the Valuer should note that the
P/E ratios of comparator companies will be affected by is reliant
on a small number of key employees; the level of financial gearing
and applicable tax rate of is dependent on one product or one
customer; those companies. has high gearing; or In using EV/EBITDA
multiples, the Valuer should note that such multiples, by
definition, remove the impact on for any other reason has poor
quality earnings. value of depreciation of fixed assets and
amortisation of goodwill and other intangibles. If such multiples
are used without sufficient care, the Valuer may fail to recognise
that business decisions to spend heavily on fixed assets or to grow
by acquisition rather than organically do have real17 18. I N T E R
N AT I O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A P I
TA L V A LUAT I O N G U I D E L I N E SW W W . P R I VAT E EQ U I T
Y VA LU AT I O N . CO M 18 These guidelines have been developed by
AFIC, BVCA and EVCA with the valuable input and endorsement of the
following associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL,
AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA,
LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) Recent transactions
involving the sale of similar companiesMaintainable Earnings are
sometimes used as a frame of reference in seeking toIn applying a
multiple to maintainable earnings, it is derive a reasonable
multiple. It is sometimes argued, sinceimportant that the Valuer is
satisfied that the earnings figure such transactions involve the
transfer of whole companiescan be relied upon. Whilst this might
tend to favour the use whereas quoted multiples relate to the price
for smallof audited historical figures rather than unaudited or
parcels of shares, that they provide a more relevant sourceforecast
figures, it should be recognised that value is by of multiples.
However, their appropriateness in this respectdefinition a
forward-looking concept, and quoted markets is often undermined by
the following:more often think of value in terms of current and
forecast the lack of forward-looking financial data and other
multiples, rather than historical ones. In addition, there is
information to allow points of difference to be identified the
argument that the valuation should, in a dynamic and adjusted
for;environment, reflect the most recent available
information.There is therefore a trade-off between the reliability
and the generally lower reliability and transparency ofrelevance of
the earnings figures available to the Valuer. reported earnings
figures of private companies; andOn balance, whilst it remains a
matter of judgment for the the lack of reliable pricing information
for the transaction Valuer, he should be predisposed towards using
historical itself.(though not necessarily audited) earnings figures
or, if hebelieves them to be reliable, forecast earnings figures
for It is a matter of judgment for the Valuer as to whether,the
current year. in deriving a reasonable multiple, he refers to a
single comparator company or a number of companies or Whichever
periods earnings are used, the Valuer should the earnings multiple
of a quoted stock market sector or satisfy himself that they
represent a reasonable estimate of sub-sector. It may be
acceptable, in particular circumstances, maintainable earnings,
which implies the need to adjust for for the Valuer to conclude
that the use of quoted sector orexceptional or non-recurring items,
the impact of sub-sector multiples or an average of multiples from
a discontinued activities and acquisitions and forecast basket of
comparator companies may be used without downturns in profits.
adjusting for points of difference between the comparator(s) and
the company being valued. 19. S EC T I O N I: D E T E R M I N I N G
F A I R V A LU E Appropriate Marketability Discount In assessing
the influence of the Fund over the timing ofRealisation, nature of
Realisation and Realisation process, The notion of a Marketability
Discount relates to ansome of the factors the Valuer should
consider are as follows: Investment rather than to the Underlying
Business. Paragraph (iv) above therefore requires the discount to
are there other like-minded shareholders with regard to be
considered and applied at the level at which the Fund Realisation
and what is the combined degree of influence? begins to participate
in the Enterprise Value. is there an agreed exit strategy or exit
plan? Marketability will vary from situation to situation and is a
do legal rights exist which allow the Fund together with question
of judgment. It should be noted that the Fair Valuelike-minded
shareholders to require the other shareholders concept requires
that the Marketability Discount is to beto agree to and enable a
proposed Realisation to proceed? determined not from the
perspective of the current holder of the Investment, but from the
perspective of Market Participants. does the management team of the
Underlying Businesshave the ability in practice to reduce the
prospects of a Some of the factors the Valuer should consider in
thissuccessful Realisation? This may be the case where the respect
are as follows:team is perceived by possible buyers to be critical
to the the closer and more certain is a Realisation event for
ongoing success of the business. If this is the case, what is the
Investment in question, the lower would be the the attitude of the
management team to Realisation? Marketability Discount;The Valuer
might consider that under specific circumstances the greater the
influence of the Fund over the timing of the Marketability Discount
is not appropriate and should Realisation, nature of Realisation
and Realisation process,not be applied. When a discount is applied,
the Valuer the lower would be the Marketability Discount; should
consider all the relevant factors in determiningthe appropriate
Marketability Discount in each particular if the underlying company
were not considered saleablesituation. A discount in the range of
10% to 30% (in steps or floatable at the reporting date, the
questions arise ofof 5%) is generally used in practice, depending
upon the what has to be done to make it saleable or floatable,
howparticular circumstances. difficult and risky that course of
action is to implement and how long it is expected to take; and the
impact of stock market conditions and mergers and acquisitions
activity levels on the ability to achieve a flotation or sale of
the Underlying Business. 19 20. I N T E R N AT I O N A L P R I VAT
E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G U I
D E L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M
20 These guidelines have been developed by AFIC, BVCA and EVCA with
the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) By way of
illustration:Apportion the Net Attributable Enterprise
Valueappropriately Where the Fund (together with like-minded
shareholders with regard to Realisation) has legal rights and the
ability The apportionment should reflect the respective amounts in
practice to initiate a Realisation process and requireaccruing to
each financial instrument holder in the event other shareholders to
co-operate, or there is in place anof a sale at that level at the
reporting date. Where there agreed Realisation strategy, a discount
rate of 10% mayare ratchets or share options or other mechanisms
(such as be appropriate.liquidation preferences, in the case of
Investments in early-stage businesses) in place which would be
triggered in the Where the Fund (together with like-minded
shareholdersevent of a sale of the company at the given Enterprise
Value with regard to Realisation) does not have such a degree ofat
that date, these should be reflected in the apportionment.
influence over Realisation, possibly by virtue of holding a
minority of the equity, but the other shareholders are not Where,
in respect of financial instruments other than equity strongly
opposed to a Realisation, a discount rate of 30%instruments, the
apportionment results in a shortfall when may be appropriate (NB.
where a Realisation event is not compared with the amounts accruing
up to the reporting foreseeable at all, perhaps because the Fund
holds a date under their contractual terms, the Valuer should
minority equity stake and the majority shareholders areconsider
whether, in estimating Fair Value, the shortfall should totally
opposed to a Realisation, methodologies whichbe applied and, if so,
to what extent. If the circumstances involve an assessment of the
value of the business as aare such that it is reasonably certain,
taking account of whole may not be appropriate). the risks
attaching, that the Fund will be able to collect allamounts due
according to the relevant contractual terms, Where the Fund
(together with like-minded shareholdersthen the shortfall should
not be applied. with regard to Realisation) does not have the
ability to require other shareholders to co-operate regarding
Realisation, but there is regular discussion about 3.5 Net Assets
Realisation prospects and timing by the board and/orThis
methodology involves deriving the value of a business shareholders,
a discount rate of 20% may be appropriate.by reference to the value
of its net assets.This methodology is likely to be appropriate for
a businesswhose value derives mainly from the underlying value of
itsassets rather than its earnings, such as property
holdingcompanies and investment businesses. 21. S EC T I O N I: D E
T E R M I N I N G F A I R V A LU E This methodology may also be
appropriate for a business that3.6 Discounted Cash Flows or
Earnings is not making an adequate return on assets and for which
a(of Underlying Business) greater value can be realised by
liquidating the business and This methodology involves deriving the
value of a business selling its assets. In the context of private
equity, it may by calculating the present value of expected future
cash therefore be appropriate, in certain circumstances, for flows
(or the present value of expected future earnings, as a valuing
Investments in loss-making companies and surrogate for expected
future cash flows). The cash flows companies making only marginal
levels of profits. and terminal value are those of the Underlying
Business, In using the Net Assets methodology to estimate the
Fairnot those from the Investment itself. Value of an Investment,
the Valuer should: The Discounted Cash Flows (DCF) technique is
flexible in i. derive an Enterprise Value for the company using the
sense that it can be applied to any stream of cash flowsappropriate
measures to value its assets and liabilities (or earnings). In the
context of private equity valuation, this(including, if
appropriate, contingent assets andflexibility enables the
methodology to be applied in situationsliabilities);that other
methodologies may be incapable of addressing. While this
methodology may be applied to businesses ii. deduct from the
Enterprise Value all amounts relating going through a period of
great change, such as a rescue to financial instruments ranking
ahead of the highest refinancing, turnaround, strategic
repositioning, loss making ranking instrument of the Fund in a
liquidation in order or is in its start-up phase, there is a
significant risk is to derive the Gross Attributable Enterprise
Value; utilising this methodology. iii. apply an appropriate
Marketability Discount to The disadvantages of the DCF methodology
centre aroundthe Gross Attributable Enterprise Value to derive its
requirement for detailed cash flow forecasts and the need tothe Net
Attributable Enterprise Value; and estimate the terminal value and
an appropriate risk-adjusted iv. apportion the Net Attributable
Enterprise Value discount rate. All of these inputs require
substantial subjective appropriately between the relevant
financialjudgments to be made, and the derived present value
instruments.amount is often sensitive to small changes in these
inputs. Guidance on the interpretation of underlined terms is given
Due to the high level of subjectivity in selecting inputs for this
in the Earnings multiple section above. technique, DCF based
valuations are useful as a cross-check of values estimated under
market-based methodologies and should only be used in isolation of
other methodologies under extreme caution. 21 22. I N T E R N AT I
O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V
A LUAT I O N G U I D E L I N E S W W W . P R I VAT E EQ U I T Y VA
LU AT I O N . CO M 22 These guidelines have been developed by AFIC,
BVCA and EVCA with the valuable input and endorsement of the
following associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL,
AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA,
LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) In assessing the
appropriateness of this methodology,3.7 Discounted Cash Flows (from
the Investment) the Valuer should consider whether its
disadvantagesThis methodology applies the DCF concept and technique
and sensitivities are such, in the particular circumstances,to the
expected cash flows from the Investment itself. as to render the
resulting Fair Value insufficiently reliable.Where Realisation of
an Investment or a flotation of the In using the Discounted Cash
Flows or EarningsUnderlying Business is imminent and the pricing of
the (of Underlying Business) methodology to estimaterelevant
transaction has been substantially agreed, the the Fair Value of an
Investment, the Valuer should:Discounted Cash Flows (from the
Investment) methodology i. derive the Enterprise Value of the
company, using (or, as a surrogate, the use of a simple discount to
the expectedreasonable assumptions and estimations of
expectedRealisation proceeds or flotation value) is likely to be
thefuture cash flows (or expected future earnings) and most
appropriate methodology.the terminal value, and discounting to the
presentThis methodology, because of its flexibility, is capable
ofby applying the appropriate risk-adjusted rate thatbeing applied
to all private equity Investment situations.quantifies the risk
inherent in the company;It is particularly suitable for valuing
non-equity Investments ii. deduct from the Enterprise Value all
amounts relatingin instruments such as debt or mezzanine debt,
since the to financial instruments ranking ahead of the
highestvalue of such instruments derives mainly from instrument-
ranking instrument of the Fund in a liquidation in order specific
cash flows and risks rather than from the value of to derive the
Gross Attributable Enterprise Value; the Underlying Business as a
whole. iii. apply an appropriate Marketability Discount toBecause
of its inherent reliance on substantial subjectivethe Gross
Attributable Enterprise Value derived judgments, the Valuer should
be extremely cautious of usingin ii above in order to derive the
Net Attributable this methodology as the main basis of estimating
Fair ValueEnterprise Value; and for Investments which include an
equity element.The methodology will often be useful as a
sense-check iv. apportion the Net Attributable Enterprise Valueof
values produced using other methodologies. appropriately between
the relevant financial instruments. Private equity risk and the
rates of return necessary tocompensate for different risk levels
are central commercial Guidance on the interpretation of underlined
terms is givenvariables in the making of all private equity
Investments. in the Earnings multiple section above.Accordingly
there exists a frame of reference against whichto make discount
rate assumptions. 23. S EC T I O N I: D E T E R M I N I N G F A I R
V A LU E However the need to make detailed cash flow forecasts over
3.8 Industry Valuation Benchmarks the Investment life may reduce
the reliability and cruciallyA number of industries have
industry-specific valuation for equity Investments, there remains a
need to estimate thebenchmarks, such as price per bed (for
nursing-home terminal value.operators) and price per subscriber
(for cable television Where the Investment comprises equity or a
combination companies). Other industries, including certain
financial of equity and other financial instruments, the terminal
valueservices and information technology sectors and some would
usually be derived from the anticipated value of services sectors
where long-term contracts are a key feature, the Underlying
Business at Realisation. This will usuallyuse multiples of revenues
as a valuation benchmark. necessitate making assumptions about
future business These industry norms are often based on the
assumption performance and developments and stock market and
otherthat investors are willing to pay for turnover or market
valuation ratios at the assumed Realisation date. In the caseshare,
and that the normal profitability of businesses in of equity
Investments, small changes in these assumptions canthe industry
does not vary much. materially impact the valuation. In the case of
non-equityThe use of such industry benchmarks is only likely to
instruments, the terminal value will usually be a pre-definedbe
reliable and therefore appropriate as the main basis amount, which
greatly enhances the reliability of the valuation.of estimating
Fair Value in limited situations, and is more In circumstances
where a Realisation is not foreseeable, likely to be useful as a
sense-check of values produced the terminal value may be based upon
assumptions of theusing other methodologies. perpetuity cash flows
accruing to the holder of the Investment. These circumstances
(which are expected to be rare in3.9 Available Market Prices
private equity) may arise where the Fund has little ability to
influence the timing of a Realisation and/or those
shareholdersPrivate Equity Funds may be holding Quoted Instruments,
that can influence the timing do not seek a Realisation. for which
there is an available market price. In using the Discounted Cash
Flows (from the Investment) Instruments quoted on a stock market
should be valued methodology to estimate the Fair Value of an
Investment, at their bid prices on the Reporting Date. the Valuer
should derive the present value of theFor certain Quoted
Instruments there is only one market Investment, using reasonable
assumptions and estimationsprice quoted, representing, for example,
the value at which of expected future cash flows and the terminal
valuethe most recent trade in the instrument was transacted. and
date, and the appropriate risk-adjusted rate that quantifies the
risk inherent to the Investment.23 24. I N T E R N AT I O N A L P R
I VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N
G U I D E L I N E SW W W . P R I VAT E EQ U I T Y VA LU AT I O N .
CO M 24 These guidelines have been developed by AFIC, BVCA and EVCA
with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) For other Quoted
Instruments there are two market prices If compliance with specific
accounting principles that at any one time: the lower bid price
quoted by a marketdiscourage the use of a discount under specific
circumstances maker, which he will pay an investor for a holding
(i.e. the is sought, the Valuer should not apply a discount to the
investors disposal price), and the higher offer price, whichmarket
price. an investor can expect to pay to acquire a holding. A
thirdOutside of accounting principles compliance, the Valuer price
basis for valuation purposes, as an alternative to eithershould
consider whether factors exist which inhibit the bid or offer, is
the mid-market price (i.e. the average of theRealisation of the
asset and that it would be appropriate bid and offer prices). Where
a bid and offer price exists, theto apply a discount to the market
price. bid price should be used, although the use of the mid-market
price will not usually result in a material overstatementFactors
which indicate that the valuation based on of value.the available
market price should be reduced by aMarketability Discount would
include situations where: This methodology should apply when the
bid prices are set on an active market. An instrument is regarded
as quoted i. there is a formal restriction on trading in the
relevant on an active market if quoted prices are readily
andsecurities; or regularly available from an exchange, broker,
dealer,ii. there is a risk that the holding may not be able to be
industry group, pricing services or regulatory agency, andsold
immediately. those prices represent actual and regularly occurring
market transaction on arms length basis. In determining the level
of Marketability Discount to apply,the method generally used in
practice is for the Valuer to The Valuer should consider whether
any legal or otherconsider the length of the period over which
trading regulations apply to the context in which the valuation
will berestrictions apply, or the size of the holding in relation
to used. International Financial Reporting Standards (IFRS)normal
trading volumes in that security. In this context, presume that the
available price for a security may be appliedthe following levels
of discount are generally used: to a holding of any size.
Accordingly to remain compliant with IFRS, Marketability Discounts
should generally not beNUMBER OF DAYS TRADING VOLUMEDISCOUNTS %
applied to prices quoted on an active market. If compliance Up to
20 0 with accounting principles that discourage the use of a
discount under specific circumstances is not sought, the20 to 4910
Valuer can elect to apply a discount to the market price. 50 to 100
20 100+25 25. S EC T I O N I: D E T E R M I N I N G F A I R V A LU
E Occasionally, it may be inappropriate to consider Marketability
Whilst it is a matter of judgment for the Valuer, where a by
reference to trading volumes. For example, in the case ofholding
is, at the reporting date, both subject to a formal a particular
security, a number of parties may have littlerestriction on trading
and also significant in relation to interest in buying on the
market, because of the smallnormal trading volumes in that
security, the discount quantities available, but may be interested
in buying moreapplied to the holding should be the higher of the
two that substantial stakes off-market. In this situation, the
estimated would be considered appropriate in each of the price and
size of such off-market transactions should becircumstances in
isolation. taken account of in considering Marketability. By way of
If a different level of discount is appropriate in light of the
further example, where the quoted entity has a stated particular
circumstances of an Investment, the Valuer should intention of
seeking a buyer and there is a reasonable use that rate and should
disclose the fact that he has done so expectation of a sale of the
entity in the six months following together with the rationale for
so doing. the reporting date at a price representing a bid premium,
it may be appropriate in the particular circumstances for the
Valuer to conclude that the positive bid premium effect offsets the
negative trading volume effect, such that the undiscounted market
price is on balance a reasonable estimate of Fair Value. In
determining the level of Marketability Discount to apply under
paragraph (iv) above, the Valuer should consider the extent of
compensation a holder would require when comparing the Investment
in question with an identical but unrestricted holding. In the case
of a six-month lock-up period, in practice a discount of 20% to the
market price is often used at the beginning of the period, reducing
to zero at the end of the period. 25 26. I N T E R N AT I O N A L P
R I VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O
N G U I D E L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N
. CO M 26 These guidelines have been developed by AFIC, BVCA and
EVCA with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) 27. S EC T I O N II:
A P P L I C AT I O N G U I DA N C E INTRODUCTION Set out below are
the most commonly used valuationmethodologies based on the ability
of the Underlying Business to Section I sets out the guidelines and
principles which generate revenues and profits. The Valuer would be
expected to represent best practice for the valuation of private
equity anduse these methodologies unless there is compelling
evidence that venture capital Investments. This section sets out
further another methodology would provide a more reliable Fair
Value. practical guidance to the application of those principles
andMethodologies should be applied consistently from one
methodologies to specific cases.reporting period to the next,
unless there is a change incircumstances of the enterprise, for
example the enterprisegenerating sustainable profits.1 S E L EC T I
N G THE A P P R O P R I AT E M ET H O D O LO GY Early stage
enterprises or enterprises without or withinsignificant revenues,
and without either profits or In estimating Fair Value for an
Investment, the Valuer shouldpositive cash flows apply a
methodology that is appropriate in light of the nature,For these
enterprises, typically in a seed, start-up or an facts and
circumstances of the Investment and should useearly-stage
situation, there are usually no current and no reasonable
assumptions and estimates.short-term future earnings or positive
cash flows. It is difficult When selecting the appropriate
methodology each Investment to gauge the probability and financial
impact of the success should be considered individually. Where an
immaterial group or failure of development or research activities
and to make of Investments in a portfolio are similar in terms of
risk profile reliable cash flow forecasts. and industry, it is
acceptable to apply the same methodologyConsequently, the most
appropriate approach to determine across all Investments in that
immaterial group. The methodologyFair Value is a methodology that
is based on market data, applied should be the same as that used
for materialthat being the Price of a Recent Investment.
investments with a similar risk profile in that industry.This
methodology is likely to be appropriate for a limited When
selecting the appropriate methodology, it is importantperiod after
the date of the relevant transaction. to consider the stage of
development of an enterprise and/or its ability to produce
maintainable profits or maintainableThe length of period for which
it would remain appropriate to positive cash. use this methodology
for a particular Investment will dependon the specific
circumstances of the case, but a period of oneyear is often applied
in practice. 27 28. I N T E R N AT I O N A L P R I VAT E E Q U I T
Y A N D V E N T U R E C A P I TA L V A LUAT I O N G U I D E L I N E
S W W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M 28 These
guidelines have been developed by AFIC, BVCA and EVCA with the
valuable input and endorsement of the following associations:AIFI,
APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, CVCA,
DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA, NVCA, NVP, PPEA, RSEAU
CAPITAL, RVCA, SAVCA, SECA, SLOVCA(Endorsement as of 1st of
November 2005) After the appropriate limited period, the Valuer
shouldIn the event that the enterprise is generating a return on
its consider whether either the circumstances of the Investmentnet
assets below expectations and that greater value may be have
changed, such that one of the other methodologies realised by the
sale of the assets, a valuation based on the net would be more
appropriate, whether there is any evidence assets methodology may
be appropriate. of deterioration or strong defensible evidence of
an increase inOther methodologies such as the earnings multiple are
value. In the absence of these indicators the Valuer will
typicallygenerally inappropriate. The DCF methodologies may be
revert to the value reported at the previous reporting
date.utilised, however the disadvantages inherent in these, arising
In the absence of significant revenues, profits or positive cash
from the high levels of subjective judgement, may render the flows,
other methodologies such as the earnings multiple are methodology
inappropriate. generally inappropriate. The DCF methodologies may
be utilised, however the disadvantages inherent in these, arising
Enterprises with revenues, maintainable profits and/or from the
high levels of subjective judgement, may render the maintainable
positive cash flows methodology inappropriate.For some period of
time after the initial Investment, the Priceof Recent Investment
methodology, is likely to be the most Enterprises with revenues,
but without either significantappropriate indication of Fair Value.
profits or significant positive cash flowsThis period of time will
depend on the specific circumstances of For these enterprises it is
often difficult to gauge thethe case, but should not generally
exceed a period of one year. probability and financial impact of
the success of development activities or to make reliable future
earnings or cash flowThereafter is it likely to be most appropriate
to estimate forecasts. This is seen typically in early stage
enterprises,Fair Value by reference to the quoted market and to use
development, turnaround or recovery situations.the Earnings
Multiple methodology. The most appropriate methodology is expected
to be the price of a recent investment. The continuing validity of
this basis as a reflection of Fair Value needs to be considered and
as a part of this consideration, industry benchmarks may provide
appropriate support. 29. S EC T I O N II: A P P L I C AT I O N G U
I DA N C E 2 S P EC I F I C C O N S I D E R AT I O N Sfunds from
investors at a higher valuation, the purposeof the down round may
be, among others, the dilution of 2.1 Internal Funding Roundsthe
founders or the dilution of investors not participatingin the round
of financing. The price at which a funding round takes place is a
clear indicator of Fair Value at that date. When using the Price
Similarly when a financing is made at a higher valuation of Recent
Investment methodology, the Valuer should(internal up round), in
the absence of new investors or considered whether there are
specific circumstancesother significant factors which indicate that
value has been surrounding that round of Investment which may
reduceenhanced, the transaction alone is unlikely to be a reliable
the reliability of the price as an indicator of Fair
Value.indicator of Fair Value. A round of financing that involves
only existing investors of the Underlying Business in the same
proportion to their 2.2 Bridge Financing existing Investments
(internal round), is unlikely to be anFunds, or related vehicles,
may grant loans to an Underlying appropriate basis for a change in
valuation as theBusiness pending a new round of financing (Bridge
loans). transaction may not have been undertaken at arms
length.This may be provided in anticipation of an initial
Investment Nevertheless, a financing with existing investors that
isby the Fund, or ahead or a proposed follow on Investment. priced
at a valuation that is lower than the valuationIn the case of an
initial Investment, where the Fund holds reported at the previous
Reporting Date (internal downno other investments in the Underlying
Business, the Bridge round) may indicate a decrease in value and
shouldloan should be valued in isolation. In these situations and
if therefore be taken into consideration.it is expected that the
financing will occur in due course and Internal down rounds may
take various forms, including that the Bridge loan is merely
ensuring that funds are made a corporate reorganisation, i.e. a
significant change in the available early, the Valuer should value
these loans at cost. equity base of a company such as converting
all outstandingIf it is anticipated that the company may have
difficulty shares into equity, combining outstanding shares into
aarranging the financing, and that its viability is in doubt,
smaller number of shares (share consolidation) or eventhe Valuer
should consider making a provision against the cancelling all
outstanding shares before a capital increase.cost of that loan. The
objectives of the existing investors in making an internal down
round may vary. Although a down round evidences the fact that the
company was unable to raise29 30. I N T E R N AT I O N A L P R I
VAT E E Q U I T Y A N D V E N T U R E C A P I TA L V A LUAT I O N G
U I D E L I N E S W W W . P R I VAT E EQ U I T Y VA LU AT I O N .
CO M 30 These guidelines have been developed by AFIC, BVCA and EVCA
with the valuable input and endorsement of the following
associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO,
BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA,
NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) If the bridge
finance is provided to an existing Investmentand that the warrant
holder will be unable to significantly in anticipation of a follow
on Investment, the bridge financeinfluence the Realisation process.
In these situations, a large should be included, together with the
original Investment, Marketability Discount will be appropriate. as
a part of the overall package of investment being valued.In the
event that the Mezzanine loan is one of a number ofinstruments held
by the Fund in the Underlying Business, 2.3 Mezzanine Loansthen the
Mezzanine loan and any attached warrants shouldbe included as a
part of the overall package of investment Mezzanine loans are one
of the commonly used sourcesbeing valued. of debt finance for
Investments. Typically these will rank below the senior debt, but
above shareholder loans or equity, bear an interest rate
appropriate to the level of risk 2.4 Rolled up Loan Interest being
assumed by the loan provider and may have additionalMany financial
instruments commonly used in private equity potentially value
enhancing aspects such as warrants.Investments accumulate interest
which is only realised in Often these are provided by a party other
than the equitycash on redemption of the instrument (e.g. deep
discount provider and as such may be the only instrument held
bydebentures or Payment-in-Kind Notes). the Fund in the Underlying
Business. In these situations, the Mezzanine loan should be valued
on a stand alone basis.In valuing these instruments, the Valuer
should assess the The price at which the Mezzanine loan was granted
is a expected amount to be recovered from these instruments.
reliable indicator of Fair Value at that date. The ValuerIf
deterioration indicators exist, a provision against the cost should
consider whether any indications of deterioration of the loan
should be made to reflect the deterioration in in the value of the
Underlying Business exist, which suggest value. The consideration
of recoverable amount will also that the loan will not be fully
recovered. In the event of include the existence of any reasonably
anticipated deterioration, this should be reflected in the Fair
Valueenhancements such as interest rate step increases. of the
Mezzanine loan. The difference between the estimated recoverable
amount(if in excess of the original cost) should be spread over
Warrants attached to Mezzanine loans should bethe anticipated life
of the note so as to give a constant rate considered separately
from the loan. The Valuer shouldof return on the instrument. select
a methodology appropriate to valuing the Underlying Business and
apply the percentage ownership that the exercised warrants will
confer to that valuation. It is expect that in most cases, the
percentage ownership will be small 31. S EC T I O N II: A P P L I C
AT I O N G U I DA N C E 2.5 Indicative Offers 3 EVENTSTOCO N S I D
E RFOR THEIRI M PAC T Indicative offers received from a third party
for the ON V A LU E Underlying Business may provide a good
indication of When performing the valuation, at each Reporting
Date, Fair Value. This will apply to offers for a part or the whole
the Valuer should consider all factors that will contribute to a
Underlying Business as well as other situations such as material
creation or diminution in value of the Investment. price
indications for debt or equity refinancing. In the absence of
reliable value indicators, such as recent However, before using the
offer as evidence of Fair Value, Investments or the generation of
profits, there are many subtle the Valuer should consider the
motivation of the party in factors which should be considered by
the Valuer as these may making the offer. Indicative offers may be
made deliberately indicate a material change in value. high for
such reasons as; to open negotiations; gain access to the company
or made subject to stringent conditions or Examples of events or
changes in circumstances which may future events. Similarly they
may be deliberately low if theindicate that a decrease or an
increase in value has occurred offeror believes that the vendor may
be in a forced saleinclude, but are not limited to: position, or to
take an opportunity to increase their equity the performance or
prospects of the Underlying Business stake at the expense of other
less liquid stakeholders. being significantly below or above the
expectations on In addition indicative offers may be made on the
basis of which the Investment was based insufficient detailed
information to be properly valid. the Underlying Business is
performing substantially and These motivations should be considered
by the Valuer, consistently behind or ahead of plan however it is
unlikely that a firm conclusion can be drawn. the Underlying
Business met or missed its milestones such Accordingly, typically
indicative offers will provide useful as clinical trials, technical
developments, divisions becoming additional support for a valuation
estimated by one of the cash positive, restructurings being
completed valuation methodologies, but are insufficiently robust to
be used in isolation. there is a deterioration or improvement in
the level of budgeted performance whether the Underlying Business
has breached any banking covenants, defaulted on any obligations31
32. I N T E R N AT I O N A L P R I VAT E E Q U I T Y A N D V E N T
U R E C A P I TA L V A LUAT I O N G U I D E L I N E SW W W . P R I
VAT E EQ U I T Y VA LU AT I O N . CO M 32 These guidelines have
been developed by AFIC, BVCA and EVCA with the valuable input and
endorsement of the following associations:AIFI, APCRI, APEA, ASCRI,
ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA,
HVCA, ILPA, IVCA, LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA,
SAVCA, SECA, SLOVCA(Endorsement as of 1st of November 2005) the
existence of off-balance sheet items, contingent liabilities Where
deterioration in value has occurred, the Valuer should and
guarantees reduce the carrying value of the Investment reported at
theprevious Reporting Date to reflect the estimated decrease. the
existence of a major lawsuitIf there is insufficient information to
accurately assess the disputes over commercial matters such as
intellectualadjusted Fair Value, decreases in value are usually in
practice property rightsassessed in tranches of 25%. If however the
Valuer believes the existence of fraud within the companythat they
have sufficient information to more accurately assessfair value
(this may occur when 25% or less or the original a change of
management or strategic direction of thevalue remains), then
smaller tranches of 5% may be applied. Underlying BusinessIf there
is evidence of value creation, such as those listed whether there
has been a significant adverse or favourableabove, the Valuer may
consider increasing the carrying value change either in the
companys business or in theof the Investment. Caution must be
applied so that positive technological, market, economic, legal or
regulatorydevelopments are not being valued before they actually
environment in which the business operates;contribute to an
increase in value of the Underlying Business. significant changes
in market conditions. This may beIn practice, in the absence of
additional financing rounds or indicated by a movement in the share
prices of quotedprofit generation, these more subtle indicators of
value businesses operating in the same or related sectors;
enhancement are generally only used to support the reversalof a
previously recognised deterioration in value. the Underlying
Business is raising money and there is evidence that the financing
will be made under conditions different from those prevailing at
the time of the previous round of financing. The Valuer will assess
the impact of all positive and negative events and adjust the
carrying value accordingly in order to reflect the Fair Value of
the Investment at the Reporting Date. 33. S EC T I O N II: A P P L
I C AT I O N G U I DA N C E 4 I M PAC T S FROMSTRUCTURINGIn
assessing whether rights are likely to be taken up bystakeholders,
the Valuer should limit their consideration to a Frequently the
structuring of a private equity Investment is comparison of the
value received by the exerciser against the complex with groups of
stakeholders holding different rights cost of exercising. If the
exerciser will receive an enhancement which either enhance or
diminish the value of their interests, in value by exercising, the
Valuer should assume that they depending on the success or
otherwise of the Underlyingwill do so. Business.The estimation of
Fair Value should be undertaken on the basis Valuations must take
account the impact of future changes in that all rights that are
currently exercisable and are likely to be the structure of the
Investment which may materially impactexercised (such as options),
or those that occur automatically the Fair Value. These potential
impacts may take several on certain events taking place (such as
liquidation preferences different legal forms and may be initiated
at the Funds option, on Realisation, or ratchets based on value),
have taken place. automatically on certain events taking place, or
at the optionConsideration should be given to whether the exercise
price of another investor. Common clauses include, but are notwill
result in surplus cash arising in the Investee Company. limited to:
Stock options and warrants Anti-dilution clauses Ratchet clauses
Convertible debt instruments Liquidation preferences Commitments to
take up follow-on capital Investments; These rights should be
reviewed on a regular basis to assess whether these are likely to
be exercised and the extent of any impact on value of the Funds
Investment. At each Reporting Date, the Valuer should determine
whether these rights are likely to be exercised. 33 34. I N T E R N
AT I O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A P I TA
L V A LUAT I O N G U I D E L I N E S W W W . P R I VAT E EQ U I T Y
VA LU AT I O N . CO M 34 These guidelines have been developed by
AFIC, BVCA and EVCA with the valuable input and endorsement of the
following associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL,
AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA,
LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) 35. W O R KG R O U P
W O R KG R O U P Marie-Fleur Bonte, Manager, PricewaterhouseCoopers
Angela Crawford-Ingle, Partner, PricewaterhouseCoopers Herman
Daems, Chairman, GIMV Jean-Yves Demeunynk, Managing Director, AFIC
Javier Echarri, Secretary General, EVCA Pierre Esmein, Partner,
Deloitte & Touche Ann Glover, CEO, Amadeus Capital Richard
Green, Managing Director, Kleinwort Capital Limited Didier Guennoc,
Chief Economist, EVCA John Mackie, Chief Executive, BVCA Sylvain
Quagliaroli, Partner, Grant Thornton Monique Saulnier, Managing
Partner, Sofinnova Partners Jean-Bernard Schmidt, Chairman,
Sofinnova Partners Writer: Anthony Cecil, Partner, KPMG35 36. I N T
E R N AT I O N A L P R I VAT E E Q U I T Y A N D V E N T U R E C A
P I TA L V A LUAT I O N G U I D E L I N E SW W W . P R I VAT E EQ U
I T Y VA LU AT I O N . CO M 36 These guidelines have been developed
by AFIC, BVCA and EVCA with the valuable input and endorsement of
the following associations:AIFI, APCRI, APEA, ASCRI, ATIC, AVCA,
AVCAL, AVCO, BVA, BVK, CVCA, CVCA, DVCA, FVCA, HKVCA, HVCA, ILPA,
IVCA, LVCA, NVCA, NVP, PPEA, RSEAU CAPITAL, RVCA, SAVCA, SECA,
SLOVCA(Endorsement as of 1st of November 2005) AFICAIFI APCRI (The
Association Franaise(The Italian Private Equity and(The Portuguese
Private Equity and des Investisseurs en Capital) Venture Capital
Association) Venture Capital Association) AFIC is an independent
organization.AIFI was founded in May 1986 in orderAPCRI was
established in 1989 and is With 210 active members, AFIC bringsto
promote, develop and institutionallybased in Lisbon. APCRI
represents the together almost all of the private equity represent
the private equity and venture Portuguese private equity and
venture institutions in France. In addition,capital activity in
Italy. The Association capital sector and promotes the asset class.
AFIC has 110 associate members. is a non-profit organisation whose
mainAPCRIs role includes representing activities are: to create a
favourable legal In order to create a clear set of standardsthe
interests of the industry to regulators environment for the private
equity and for the private equity business, AFICand standard
setters; developing venture capital investment activity, to drafted
a "Code of Ethics", to which professional standards; providing
analyse the Italian private equity market all members must adhere
to.industry research; professional collecting statistical data, to
organize AFIC regularly publishes reference development and forums,
facilitating business seminars and specialized courses documents,
which include the "Privateinteraction between its members and
addressed to institutional investors and Equity Best Practices
Guidelines". key industry participants including to people
interested in operating within Lastly, AFIC issues
recommendationsinstitutional investors, entrepreneurs, the
industry, to publish research papers on corporate governance which
arepolicymakers and academics. regarding specific topics about the
private designed to promote transparency equity market, to build up
stable andAPCRIs activities cover the whole and responsibility.
solid relationships with other Nationalrange of private equity:
venture capital Venture Capital Associations and key (from seed and
start-up to development players in the international private
capital), buyouts and buyins. equity market. In order to carry out
theAPCRI represents the vast majority of above-mentioned
activities, AIFI canprivate equity and venture capital in rely both
on its permanent staff and onPortugal. APCRI has 16 full members
different Technical Committeesand 5 associate members. Full members
established with the task to carry outare active in making equity
investments activities of study on specific mattersprimarily in
unquoted companies. and projects. 37. APEA ASCRI The associate
membership can include (The Arab Private Equity Association)(The
Spanish Private Equity and those firms who invest directly
inVenture Capital Association)APEA is the only pan-Arab industry
private equity but for whom this is notassociation sponsored by the
EconomicASCRI is a non-profit making association their principal
activity, advisory firmsUnity Council of the Arab League, thethat
was set up in 1986, to promote and experienced in dealing with
privateAPEA was formed to address the develop the venture capital
and private equity and educational or researchchallenges faced by
private equity firms equity activity in Spain and represent, based
institutions closely associatedas well as venture capitalists in
the Arab manage and defend its members with the industry.world.
APEA believes that privateprofessional interests.equity and venture
capitalism can be The Association stimulates the promotionimportant
catalysts for the provision and information analysis in the
ventureof economic opportunities, increased capital/private equity
sector in Spain,investment flows, and superior business and
provides the contact between Officialperformance for Arab
industries. Organisations, investors, professionalAPEA's core
mission is to increase advisers, business schools and otherthe role
of this young but rapidly relevant institutions. At the end
ofgrowing industry in the Arab world, May 2005, ASCRI had 84 full
membersand strengthen the performance and 28 associate members.of
private equity investment in theemerging Arab market.The ASCRIs
main activities are: Research activity, Organisation of different
events such as: Annual General Assembly, ASCRI Congress, Training
Seminars and Conferences/Workshops, Communication of investment
opportunities between ASCRI members, and Institutional and lobbying
activity. 37 38. I N T E R N AT I O N A L P R I VAT E E Q U I T Y A
N D V E N T U R E C A P I TA L V A LUAT I O N G U I D E L I N E S W
W W . P R I VAT E EQ U I T Y VA LU AT I O N . CO M 38 These
guidelines have been developed by AFIC, BVCA and EVCA with the
valuable input and endorsement of the following associations:AIFI,
APCRI, APEA, ASCRI, ATIC, AVCA, AVCAL, AVCO, BVA, BVK, CVCA, CVCA,
DVCA, FVCA, HKVCA, HVCA, ILPA, IVCA, LVCA, NVCA, NVP, PPEA, RSEAU
CAPITAL, RVCA, SAVCA, SECA, SLOVCA(Endorsement as of 1st of
November 2005) ATICAVCA (The Tunisian Venture Capital ATIC's third
objective no less important(The African Venture Capital
Association)is to inculcate the right private equityAssociation)
and venture capital culture to local ATIC (Association Tunisienne
desAVCA represents the private equity and professionals, to enhance
the creation of Investisseurs en Capital) is a professional venture
capital industry in Africa. a new generation of Funds managers
association founded in April 2004, by AVCA was established in 2002
and its and to reach strategic alliances with more than 30
companies operating in head office is in Yaound, Cameroon. their
European or US counterparts. the field of Private Equity and
Venture AVCAs membership is drawn from ATIC aims to reach that by
enforcing Capital in Tunisia. Its main gaol is to across Africa and
internationally. the best practices of the profession play the
vis-a-vis with the TunisianAVCAs objectives are to represent the
according to international standards, authorities to introduce the
appropriateindustry within Africa and internationally, through its
planned training programs. legal and fiscal measures to ease the
stimulate the growth and expansion development, and solve the
problems ofof the industry throughout Africa, the private equity
and venture capitalstimulate professional relationships and
industry in Tunisia.co-operation, provide opportunities for
professional development of industry ATIC second objective is to
offer its practitioners, research, publish and members the
appropriate space for circulate industry information and insights,
networking, information exchange and provide policymakers with
proposals to business development to upgrade the improve the
corporate, fiscal and legal Tunisian industry by targeting higher
environment for the industry, maintain value added technology
projects, and high ethical and professional standards stronger
alliances with its North African and contribute to the management
and European Partners. development of investors, investees and
other stakeholders. AVCAs activities include an annual industry
conference, a quarterly newsletter, research, training and advocacy
programs. For more information visit the AVCA website
www.avcanet.com. 39. AVCAL AVCO In addition it takes the role of
aninterface to international organisations (T