CHAPTER 8

Don't Hate the Appraiser (Blame the Auditor Instead)

“...it may be inappropriate to use discounted cash flows for valuing an equity investment in a start-up enterprise if there are no current revenues on which to base the forecast of future earnings or cash flows.”

–Auditing Fair Value Measurements and Disclosures, Statement on Auditing Standards No. 101

I've had the pleasure of working with a wide variety of appraisers almost exclusively with respect to the work they do valuing venture-backed companies to fulfill either financial reporting or tax compliance requirements. In this field, one often hears that “valuation is more of an art than a science.” In fact, I have a memory peg for that, which is included in this chapter. But despite the saying, if you've spent time with any of these valuation professionals, you realize that they are truly dedicated to what they do, take the opinions they issue very personally, and are constantly making an effort to remain current in the latest technology and techniques to reach more meaningful and appropriate value conclusions.

This chapter offers a candid interview with Jeff Faust, an Accredited Valuation Analyst whose practice expertise has focused on 409A valuations. Following the interview with Jeff in this chapter, Chapter 9 then offers a group discussion including two other valuation professionals who have focused primarily on 409A and Topic 820 valuations for venture-backed companies and venture funds since the regulations ...

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