CHAPTER 9

Don't Blame the Auditors (Blame the Practice Aid Instead)

409A Valuation Professionals Discussing Topic 820 (FAS 157) with VC CFOs

In preparation for this book, I held a conference with three valuation experts I know have focused almost exclusively on venture-backed company valuations and done so at difference firms. The goal of the conference was to give venture-fund CFOs and finance teams an idea of trends taking place with 409A as a result of Topic 718 audits, as those same audit firms would likely be applying some of the same requirements on Topic 820 related audit work they conducted when auditing venture funds.

I was surprised by several things that became clear immediately after the meeting. First, the venture-fund CFOs and finance teams, all of whom were extremely well versed in finance and especially well versed in VC transactions, felt like much of the conversation from the valuation experts was a foreign language. I anticipated there would be some points of disconnected terminology and experience but hoped to bridge that gap with real-world examples from venture-backed companies that went public. While there was great appreciation on both sides, the venture-fund finance teams generally felt it was too much technical information to take in given the time constraints. The next thing I realized was the degree to which auditors might, potentially, be influencing the value conclusions reached by otherwise unrelated valuation professionals. Each of the experts on ...

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