International Private Equity and Venture Capital Valuation Guidelines by yaofenji

VIEWS: 7 PAGES: 52

									                                                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 S
             These guidelines have been developed by the Association Française 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, Italy - APCRI, Portugal - APEA, Arab countries - ASCRI, Spain - ATIC, Tunisia - AVCA, Africa
   AVCAL, Australia - AVCO, Austria - BVA, Belgium - BVK, Germany - CVCA, Canada - CVCA, Czech Republic
DVCA, Denmark - FVCA, Finland - HKVCA, Hong Kong - HVCA, Hungary - ILPA - IVCA, Ireland - LVCA, Latvia
              NVCA, Norway - NVP, The Netherlands - PPEA, Poland - Réseau Capital, Quebec - RVCA, Russia
                                               SAVCA, South Africa - SECA, Switzerland - SLOVCA, Slovakia
                                                                                  (Endorsement as of 1st of November 2005)
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)
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
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)
                                                                  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 with
                                                             the 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.
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




                                                                                    CO N T E N TS
                                                                                    INTRODUCTION                                                                                      7
                                                                                    Definitions                                                                                       7

                                                                                    SECTION I: DETERMINING FAIR VALUE                                                                  9
                                                                                    1 The Concept of Fair Value                                                                        9
                                                                                    2 Principles of Valuation                                                                          9
                                                                                    3 Valuation Methodologies                                                                         12
                                                                                      3.1 General                                                                                     12
                                                                                      3.2 Selecting the Appropriate Methodology                                                       13
                                                                                      3.3 Price of Recent Investment                                                                  14
                                                                                      3.4 Earnings Multiple                                                                           15
                                                                                      3.5 Net Assets                                                                                  20
                                                                                      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                                                                     23

                                                                                    SECTION II: APPLICATION GUIDANCE                                                                  27
                                                                                    Introduction                                                                                      27
                                                                                    1 Selecting the Appropriate Methodology                                                           27
                                                                                    2 Specific Considerations                                                                         29
                                                                                        2.1 Internal Funding Rounds                                                                   29
                                                                                        2.2 Bridge Financing                                                                          29
                                                                                        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 Value                                                    31
                                                                                    4 Impacts from Structuring                                                                        33

                                                                                    WORKGROUP                                                                                         35
                                                                                           INTRODUCTION




  INTRODUCTION                              However, the requirements and                and a valuation methodology (such as
                                            implications of the Financial Reporting      the earnings multiple technique), which
Private Equity Managers may be              Standards and in particular International    details 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 they      preparation 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 “Fair    private equity and venture capital
                                                                                           DEFINITIONS
Value”, with a view to promoting best       Investments which is consistent with
                                                                                         The 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 to
                                                                                         The Enterprise Value is the value of
international accounting authorities on     reflect changes in international
                                                                                         the financial instruments representing
Fair Value reinforces the need for the      regulation or accounting standards.
                                                                                         ownership interests in an entity plus
consistent use of valuation standards
                                            These Guidelines are concerned with          the 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 Funds        Committee oversights, the experience
                                                                                         arm’s 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,
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




Fund                                                                                Marketability                                   Quoted Instrument
The Fund, i.e. a private equity or                                                  Marketability 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 any                                            may 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 other                                            Marketability Discount
investment vehicles.                                                                                                                Realisation
                                                                                    The Marketability Discount is the
                                                                                    consequence of the return Market                Realisation 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 lack              in 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 Fund                                                                                              the Fund is envisaged.
and other financial instruments in the                                              Market 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 sellers        An Unquoted Instrument is any financial
                                                                                    when neither is under any compulsion            instrument 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 facts          Underlying 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
Investment                                                                          related to the enterprise.
                                                                                                                                    number of dedicated holding companies.
A Fund’s Investment refers to all of the
                                                                                    Net Attributable Enterprise Value
financial instruments in an Investee                                                                                                Valuer
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.
                                                  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 PRINCIPLES        OF   V A LU AT I O N
Fair Value is the amount for which an asset could be                Investments should be reported at Fair Value at the
exchanged between knowledgeable, willing parties in an arm’s        reporting date.
length transaction.
                                                                    In the absence of an active market for a financial instrument,
The estimation of Fair Value does not assume either that the        the 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 which            the 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, or
                                                                         excess/unrecorded liabilities and other relevant factors;


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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




(iii) Deduct from this amount any financial instruments                                                                As 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 Fund’s Investment to derive the Gross Attributable
                                                                                                                       Fair Value should reflect reasonable estimates and
      Enterprise Value;
                                                                                                                       assumptions for all significant factors that parties to an arm’s
(iv) Apply an appropriate Marketability Discount to the                                                                length transaction would be expected to consider, including
     Gross Attributable Enterprise Value to derive the Net                                                             those which impact upon the expected cash flows from the
     Attributable Enterprise Value;                                                                                    Investment and upon the degree of risk associated with those
                                                                                                                       cash flows.
(v) Apportion the Net Attributable Enterprise Value
    between the company’s 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 Fund’s                                                              • note that the objective is to replicate those that the parties in
     holding in each financial instrument, representing their                                                            an arm’s-length transaction would make;
     Fair Value.
                                                                                                                       • take account of events taking place subsequent to the
It is important to recognise the subjective nature of private                                                            reporting 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 caution
                                                                                                                       should be applied in exercising judgment and making the
Due to the complex interaction of these factors and often the
                                                                                                                       necessary estimates. However, the Valuer should be wary
lack of directly comparable market transactions, care should be
                                                                                                                       of 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 necessary                                                          a 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, foreign                                                        or whatever. Sometimes these situations involve rescue
currency and exchange price, equity prices and volatility.                                                             refinancing or a turnaround of the business in question.
                                                                             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 a      the 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 accepted              In respect of Investments for which Fair Value cannot be
methodologies in a consistent manner based on reasonable          reliably 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.




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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, RÉSEAU 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, the
                                                                                                                       Valuer should use judgement. This includes a detailed
    3.1 General                                                                                                        consideration of those specific terms of the Investment
                                                                                                                       which may impact its Fair Value. In this regard, the
    A number of valuation methodologies that may be considered
                                                                                                                       Valuer should consider the substance of the Investment,
    for use in estimating the Fair Value of Unquoted
                                                                                                                       which 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 to                                                              It 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 the
                                                                                                                       reporting date. In valuing an Investment stake in that
    Because, in the private equity arena, value is generally
                                                                                                                       business, one would not merely take the relevant share of
    crystallised through a sale or flotation of the entire
                                                                                                                       the business’s value, since that would fail to recognise the
    Underlying Business, rather than through a transfer of
                                                                                                                       uncertainty and risk involved in actually selling the business
    individual shareholder stakes, the value of the business as a
                                                                                                                       and crystallising the Investment value, and particularly the
    whole at the reporting date will often provide a key insight
                                                                                                                       risk that value may be eroded before a sale can be achieved
    into the value of investment stakes in that business. For this
                                                                                                                       under 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 the
                                                                                                                       assumption that options and warrants are exercised, where
    There will be some situations where the Fund has little
                                                                                                                       the Fair Value is in excess of the exercise price. The exercise
    ability to influence the timing of a Realisation and a
                                                                                                                       price of these may result in surplus cash arising in the
    Realisation is not likely in the foreseeable future, perhaps
                                                                                                                       Underlying 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 the                                                            may impact the Fair Value of the Fund’s 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 circumstances                                                              of the Fund’s Investment.
    should therefore reflect this fact.
                                                                            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 give        profits 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 Fund’s 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 appropriate            consider 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,
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    This may occur for example in the case of a company                                                                3.3 Price of Recent Investment
    becoming profitable and cash flow becoming positive on a
                                                                                                                       Where 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 clearly
                                                                                                                       Fair Value. Where there has been any recent Investment in
    stated. It is expected that there would not be frequent
                                                                                                                       the 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 used
                                                                                                                       The validity of a valuation obtained in this way is inevitably
    methodologies. In assessing whether a methodology is
                                                                                                                       eroded over time, since the price at which an Investment was
    appropriate, the Valuer should be predisposed towards
                                                                                                                       made reflects the effects of conditions that existed when the
    those methodologies that are generally accepted and those
                                                                                                                       transaction 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 the
                                                                                                                       will 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 industry
                                                                                                                       In addition, where the price at which a third party has
    benchmarks should rarely be used in isolation of the
                                                                                                                       invested 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 of
                                                                                                                       In 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 with
                                                                                                                         little new Investment;
     Price of Recent Investment
     Earnings multiple
                                                                                                                       • different rights attach to the new and existing
                                                                                                                         Investments;
     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 or
     Discounted cash flows (from the Investment)                                                                         ‘rescue package’; or
     Industry valuation benchmarks                                                                                     • the absolute amount of the new Investment is relatively
                                                                                                                         insignificant.
                                                                          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 the        and 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 engaged
                                                                   the company’s business or in the technological, market,
in technological or scientific innovation and discovery, the
                                                                   economic, legal or regulatory environment in which the
methodology will often be appropriate for valuing
                                                                   business operates;
Investments in such circumstances.
                                                                 • market conditions have deteriorated. This may be indicated
The length of period for which it would remain appropriate to
                                                                   by a fall in the share prices of quoted businesses operating
use this methodology for a particular Investment will depend
                                                                   in 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 is
                                                                   evidence 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 of          3.4 Earnings Multiple
the Investment, but only for a limited period following
                                                                 This methodology involves the application of an earnings
the date of the relevant transaction. During the limited
                                                                 multiple to the earnings of the business being valued in
period following the date of the relevant transaction, the
                                                                 order to derive a value for the business.
Valuer should in any case assess whether changes or
events subsequent to the relevant transaction would              This methodology is likely to be appropriate for an
imply a change in the Investment’s Fair Value.                   Investment in an established business with an identifiable
                                                                 stream of continuing earnings that can be considered to be
For example, a reduction in the Investment’s Fair Value
                                                                 maintainable.
may have occurred for a number of reasons, including
the following:                                                   This methodology may be applicable to companies with
                                                                 negative earnings, if the losses are considered to be
• the performance and/or prospects of the Underlying
                                                                 temporary and one can identify a level of “normalised”
  Business are significantly below the expectations on which
                                                                 maintainable earnings.
  the Investment was based. Prima facie indicators of this
  include a failure to meet significant milestones or to                                                                           15
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   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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    This may involve the use of averaging of earnings figures                                                          Guidance on the interpretation of underlined terms is given
    for a number of periods, using a forecast level of earnings                                                        below.
    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/earnings
                                                                                                                       before interest and tax (EV/EBIT) and depreciation and
    i.     apply a multiple that is appropriate and reasonable
                                                                                                                       amortisation (EV/EBITDA). The particular multiple used
           (given the risk profile and earnings growth prospects
                                                                                                                       should be appropriate for the business being valued.
           of the underlying company) to the maintainable
                                                                                                                       (N.B: The multiples of revenues and their use are presented
           earnings of the company;
                                                                                                                       in 3.8. Industry Valuation Benchmarks)
    ii. adjust the amount derived in (i) above for surplus
                                                                                                                       In general, because of the key role of financial structuring
        assets or excess liabilities and other relevant factors
                                                                                                                       in 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 applied
         to financial instruments ranking ahead of the highest                                                         to a taxed EBIT figure (after deducting finance costs
         ranking instrument of the Fund in a liquidation and                                                           relating to working capital or to assets acquired or leased
         taking into account the effect of any instrument that                                                         using asset finance) rather than to actual after-tax profits,
         may dilute the Fund’s Investment in order to derive                                                           since the latter figure will generally have been significantly
         the 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 Attributable                                                                  The denominator can be the earnings figure for any
        Enterprise Value; and                                                                                          specified period of time and multiples are often defined as
                                                                                                                       “historical”, “current” or “forecast” to indicate the earnings
    v. apportion the Net Attributable Enterprise Value
                                                                                                                       used. It is important that the multiple used correlates to the
       appropriately between the relevant financial
                                                                                                                       period and concept of earnings of the company being valued.
       instruments.
                                                                             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 Multiple                                                costs associated with them which should be reflected in the
                                                                   value 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 by              should be considered and assessed by reference to the two
the market. Whilst there is an argument that the market            key 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 parcels”          of the company being valued, the Valuer should recognise
of shares are exchanged, the presumption in these                  that risk arises from a range of aspects, including the nature
Guidelines is that market based multiples do correctly             of the company’s 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 its
                                                                   management and employees and, importantly in the case of
Where market-based multiples are used, the aim is to
                                                                   private equity, its capital structure and the ability of the Fund
identify companies that are similar, in terms of risk attributes
                                                                   holding 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 adverse
                                                                     economic 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 real                                                                            17
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   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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    Recent transactions involving the sale of similar companies                                                        Maintainable Earnings
    are sometimes used as a frame of reference in seeking to
                                                                                                                       In applying a multiple to maintainable earnings, it is
    derive a reasonable multiple. It is sometimes argued, since
                                                                                                                       important that the Valuer is satisfied that the earnings figure
    such transactions involve the transfer of whole companies
                                                                                                                       can be relied upon. Whilst this might tend to favour the use
    whereas quoted multiples relate to the price for “small
                                                                                                                       of audited historical figures rather than unaudited or
    parcels” of shares, that they provide a more relevant source
                                                                                                                       forecast figures, it should be recognised that value is by
    of multiples. However, their appropriateness in this respect
                                                                                                                       definition 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 of
                                                                                                                       relevance of the earnings figures available to the Valuer.
      reported earnings figures of private companies; and
                                                                                                                       On 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 he
                                                                                                                       believes 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 period’s 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 or                                                        exceptional 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.
                                                                             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 of
                                                                   Realisation, nature of Realisation and Realisation process,
The notion of a Marketability Discount relates to an
                                                                   some 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 Value
                                                                     like-minded shareholders to require the other shareholders
concept requires that the Marketability Discount is to be
                                                                     to 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 Business
                                                                     have the ability in practice to reduce the prospects of a
Some of the factors the Valuer should consider in this
                                                                     successful 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 determining
                                                                   the appropriate Marketability Discount in each particular
• if the underlying company were not considered saleable
                                                                   situation. A discount in the range of 10% to 30% (in steps
  or floatable at the reporting date, the questions arise of
                                                                   of 5%) is generally used in practice, depending upon the
  what has to be done to make it saleable or floatable, how
                                                                   particular 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
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    By way of illustration:                                                                                            Apportion the Net Attributable Enterprise Value
                                                                                                                       appropriately
    • 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 require                                                        accruing to each financial instrument holder in the event
      other shareholders to co-operate, or there is in place an                                                        of a sale at that level at the reporting date. Where there
      agreed Realisation strategy, a discount rate of 10% may                                                          are 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 shareholders
                                                                                                                       event of a sale of the company at the given Enterprise Value
      with regard to Realisation) does not have such a degree of
                                                                                                                       at 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 are                                                          consider whether, in estimating Fair Value, the shortfall should
      totally opposed to a Realisation, methodologies which                                                            be applied and, if so, to what extent. If the circumstances
      involve an assessment of the value of the business as a                                                          are 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 all
                                                                                                                       amounts due according to the relevant contractual terms,
    • Where the Fund (together with like-minded shareholders
                                                                                                                       then 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/or
                                                                                                                       This 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 business
                                                                                                                       whose value derives mainly from the underlying value of its
                                                                                                                       assets rather than its earnings, such as property holding
                                                                                                                       companies and investment businesses.
                                                                          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 that    3.6 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 Fair        not 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 flows
     appropriate measures to value its assets and liabilities   (or earnings). In the context of private equity valuation, this
     (including, if appropriate, contingent assets and          flexibility enables the methodology to be applied in situations
     liabilities);                                              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 around
     the Gross Attributable Enterprise Value to derive
                                                                its requirement for detailed cash flow forecasts and the need to
     the 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 financial                judgments 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
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, RÉSEAU 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 disadvantages
                                                                                                                       This 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 Earnings
                                                                                                                       Underlying Business is imminent and the pricing of the
    (of Underlying Business) methodology to estimate
                                                                                                                       relevant 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 expected
           reasonable assumptions and estimations of expected                                                          Realisation proceeds or flotation value) is likely to be the
           future cash flows (or expected future earnings) and                                                         most appropriate methodology.
           the terminal value, and discounting to the present
                                                                                                                       This methodology, because of its flexibility, is capable of
           by applying the appropriate risk-adjusted rate that
                                                                                                                       being 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 relating                                                          in instruments such as debt or mezzanine debt, since the
        to financial instruments ranking ahead of the highest                                                          value 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 to                                                                Because of its inherent reliance on substantial subjective
         the Gross Attributable Enterprise Value derived                                                               judgments, the Valuer should be extremely cautious of using
         in ii above in order to derive the Net Attributable                                                           this methodology as the main basis of estimating Fair Value
         Enterprise 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 Value
                                                                                                                       of values produced using other methodologies.
        appropriately between the relevant financial
        instruments.                                                                                                   Private equity risk and the rates of return necessary to
                                                                                                                       compensate for different risk levels are central commercial
    Guidance on the interpretation of underlined terms is given
                                                                                                                       variables in the making of all private equity Investments.
    in the “Earnings multiple” section above.
                                                                                                                       Accordingly there exists a frame of reference against which
                                                                                                                       to make discount rate assumptions.
                                                                            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 crucially
                                                                   A number of industries have industry-specific valuation
for equity Investments, there remains a need to estimate the
                                                                   benchmarks, 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 value      services 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 usually          use 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 other            that investors are willing to pay for turnover or market
valuation ratios at the assumed Realisation date. In the case      share, and that the normal profitability of businesses in
of equity Investments, small changes in these assumptions can      the industry does not vary much.
materially impact the valuation. In the case of non-equity
                                                                   The use of such industry benchmarks is only likely to
instruments, the terminal value will usually be a pre-defined
                                                                   be 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 the            using other methodologies.
perpetuity cash flows accruing to the holder of the Investment.
These circumstances (which are expected to be rare in
                                                                   3.9 Available Market Prices
private equity) may arise where the Fund has little ability to
influence the timing of a Realisation and/or those shareholders    Private 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 the
                                                                   For certain Quoted Instruments there is only one market
Investment, using reasonable assumptions and estimations
                                                                   price quoted, representing, for example, the value at which
of expected future cash flows and the terminal value
                                                                   the 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
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   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, RÉSEAU 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 market                                                          discourage 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
    investor’s disposal price), and the higher “offer” price, which                                                    market price.
    an investor can expect to pay to acquire a holding. A third
                                                                                                                       Outside of accounting principles compliance, the Valuer
    price basis for valuation purposes, as an alternative to either
                                                                                                                       should consider whether factors exist which inhibit the
    bid or offer, is the mid-market price (i.e. the average of the
                                                                                                                       Realisation of the asset and that it would be appropriate
    bid and offer prices). Where a bid and offer price exists, the
                                                                                                                       to 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 overstatement                                                          Factors which indicate that the valuation based on
    of value.                                                                                                          the available market price should be reduced by a
                                                                                                                       Marketability 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 and                                                                    securities; 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, and
                                                                                                                           sold immediately.
    those prices represent actual and regularly occurring market
    transaction on arm’s 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 other
                                                                                                                       consider the length of the period over which trading
    regulations apply to the context in which the valuation will be
                                                                                                                       restrictions 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 applied
                                                                                                                       the following levels of discount are generally used:
    to a holding of any size. Accordingly to remain compliant
    with IFRS, Marketability Discounts should generally not be                                                          NUMBER OF DAYS TRADING VOLUME                      DISCOUNTS %
    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, the                                                            20 to 49                                                    10
    Valuer can elect to apply a discount to the market price.                                                           50 to 100                                                   20
                                                                                                                        100+                                                        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 of      holding is, at the reporting date, both subject to a formal
a particular security, a number of parties may have little        restriction on trading and also significant in relation to
interest in buying on the market, because of the “small”          normal trading volumes in that security, the discount
quantities available, but may be interested in buying more        applied 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 be          circumstances 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.




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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)
                                                      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 valuation
                                                                       methodologies 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 and        use 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 and
                                                                       Methodologies should be applied consistently from one
methodologies to specific cases.
                                                                       reporting period to the next, unless there is a change in
                                                                       circumstances of the enterprise, for example the enterprise
                                                                       generating 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 with
                                                                       insignificant revenues, and without either profits or
In estimating Fair Value for an Investment, the Valuer should          positive 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 use
                                                                       early-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 methodology
                                                                       Consequently, the most appropriate approach to determine
across all Investments in that immaterial group. The methodology
                                                                       Fair Value is a methodology that is based on market data,
applied should be the same as that used for material
                                                                       that 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 important
                                                                       period 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 maintainable            The length of period for which it would remain appropriate to
positive cash.                                                         use this methodology for a particular Investment will depend
                                                                       on the specific circumstances of the case, but a period of one
                                                                       year is often applied in practice.
                                                                                                                                            27
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




After the appropriate limited period, the Valuer should                                                                In the event that the enterprise is generating a return on its
consider whether either the circumstances of the Investment                                                            net 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 in
                                                                                                                       Other methodologies such as the earnings multiple are
value. In the absence of these indicators the Valuer will typically
                                                                                                                       generally 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 Price
                                                                                                                       of Recent Investment methodology, is likely to be the most
Enterprises with revenues, but without either significant
                                                                                                                       appropriate indication of Fair Value.
profits or significant positive cash flows
                                                                                                                       This period of time will depend on the specific circumstances of
For these enterprises it is often difficult to gauge the
                                                                                                                       the 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 flow                                                            Thereafter 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.
                                                                          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 S                    funds from investors at a higher valuation, the purpose
                                                               of the down round may be, among others, the dilution of
2.1 Internal Funding Rounds                                    the founders or the dilution of investors not participating
                                                               in 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 circumstances            other significant factors which indicate that value has been
surrounding that round of Investment which may reduce          enhanced, 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 an
                                                               Funds, or related vehicles, may grant loans to an Underlying
appropriate basis for a change in valuation as the
                                                               Business pending a new round of financing (Bridge loans).
transaction may not have been undertaken at arm’s length.
                                                               This may be provided in anticipation of an initial Investment
Nevertheless, a financing with existing investors that is      by the Fund, or ahead or a proposed follow on Investment.
priced at a valuation that is lower than the valuation
                                                               In the case of an initial Investment, where the Fund holds
reported at the previous Reporting Date (internal down
                                                               no other investments in the Underlying Business, the Bridge
round) may indicate a decrease in value and should
                                                               loan 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 outstanding
                                                               If it is anticipated that the company may have difficulty
shares into equity, combining outstanding shares into a
                                                               arranging the financing, and that its viability is in doubt,
smaller number of shares (share consolidation) or even
                                                               the 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 raise
                                                                                                                                 29
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    If the bridge finance is provided to an existing Investment                                                        and that the warrant holder will be unable to significantly
    in anticipation of a follow on Investment, the bridge finance                                                      influence 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 of
                                                                                                                       instruments held by the Fund in the Underlying Business,
    2.3 Mezzanine Loans                                                                                                then the Mezzanine loan and any attached warrants should
                                                                                                                       be included as a part of the overall package of investment
    Mezzanine loans are one of the commonly used sources
                                                                                                                       being 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 additional
                                                                                                                       Many 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 equity
                                                                                                                       cash on redemption of the instrument (e.g. deep discount
    provider and as such may be the only instrument held by
                                                                                                                       debentures 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 Valuer                                                          If 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 Value                                                          enhancements 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 be
                                                                                                                       the anticipated life of the note so as to give a constant rate
    considered separately from the loan. The Valuer should
                                                                                                                       of 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
                                                                             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 EVENTS      TO    CO N S I D E R    FOR THEIR          I 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 the    indicate that a decrease or an increase in value has occurred
offeror believes that the vendor may be in a forced sale        include, 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 obligations


                                                                                                                                       31
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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, RÉSEAU 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 the
                                                                                                                       previous Reporting Date to reflect the estimated decrease.
• the existence of a major lawsuit
                                                                                                                       If there is insufficient information to accurately assess the
• disputes over commercial matters such as intellectual
                                                                                                                       adjusted Fair Value, decreases in value are usually in practice
  property rights
                                                                                                                       assessed in tranches of 25%. If however the Valuer believes
• the existence of fraud within the company                                                                            that they have sufficient information to more accurately assess
                                                                                                                       fair value (this may occur when 25% or less or the original
• a change of management or strategic direction of the
                                                                                                                       value remains), then smaller tranches of 5% may be applied.
  Underlying Business
                                                                                                                       If there is evidence of value creation, such as those listed
• whether there has been a significant adverse or favourable
                                                                                                                       above, the Valuer may consider increasing the carrying value
  change either in the company’s business or in the
                                                                                                                       of the Investment. Caution must be applied so that positive
  technological, market, economic, legal or regulatory
                                                                                                                       developments 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 be                                                                In practice, in the absence of additional financing rounds or
  indicated by a movement in the share prices of quoted                                                                profit generation, these more subtle indicators of value
  businesses operating in the same or related sectors;                                                                 enhancement are generally only used to support the reversal
                                                                                                                       of 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.
                                                                                 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   FROM    STRUCTURING                              In assessing whether rights are likely to be taken up by
                                                                   stakeholders, 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 Underlying            will 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 impact        exercised (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 Fund’s option,   on Realisation, or ratchets based on value), have taken place.
automatically on certain events taking place, or at the option
                                                                   Consideration should be given to whether the exercise price
of another investor. Common clauses include, but are not
                                                                   will 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 Fund’s Investment. At each Reporting
Date, the Valuer should determine whether these rights are
likely to be exercised.

                                                                                                                                         33
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)
                                                                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, KPMG




                                                                                   35
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    AFIC                                                                                AIFI                                         APCRI
(The Association Française                                                          (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 order          APCRI was established in 1989 and is
With 210 active members, AFIC brings                                                to promote, develop and institutionally        based 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 main
                                                                                                                                   APCRI’s role includes representing
                                                                                    activities are: to create a favourable legal
In order to create a clear set of standards                                                                                        the interests of the industry to regulators
                                                                                    environment for the private equity and
for the private equity business, AFIC                                                                                              and 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 "Private                                                                                              interaction 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 recommendations                                                                                                institutional investors, entrepreneurs,
                                                                                    the industry, to publish research papers
on corporate governance which are                                                                                                  policymakers and academics.
                                                                                    regarding specific topics about the private
designed to promote transparency
                                                                                    equity market, to build up stable and          APCRI’s activities cover the whole
and responsibility.
                                                                                    solid relationships with other National        range 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 the
                                                                                                                                   APCRI represents the vast majority of
                                                                                    above-mentioned activities, AIFI can
                                                                                                                                   private equity and venture capital in
                                                                                    rely both on its permanent staff and on
                                                                                                                                   Portugal. APCRI has 16 full members
                                                                                    different Technical Committees
                                                                                                                                   and 5 associate members. Full members
                                                                                    established with the task to carry out
                                                                                                                                   are active in making equity investments
                                                                                    activities of study on specific matters
                                                                                                                                   primarily in unquoted companies.
                                                                                    and projects.
                                             APEA                                         ASCRI
The associate membership can include       (The Arab Private Equity Association)        (The Spanish Private Equity and
those firms who invest directly in                                                      Venture Capital Association)
                                           APEA is the only pan-Arab industry
private equity but for whom this is not
                                           association sponsored by the Economic        ASCRI is a non-profit making association
their principal activity, advisory firms
                                           Unity Council of the Arab League, the        that was set up in 1986, to promote and
experienced in dealing with private
                                           APEA was formed to address the               develop the venture capital and private
equity and educational or research
                                           challenges faced by private equity firms     equity activity in Spain and represent,
based institutions closely associated
                                           as well as venture capitalists in the Arab   manage and defend its members’
with the industry.
                                           world. APEA believes that private            professional interests.
                                           equity and venture capitalism can be
                                                                                        The Association stimulates the promotion
                                           important catalysts for the provision
                                                                                        and information analysis in the venture
                                           of economic opportunities, increased
                                                                                        capital/private equity sector in Spain,
                                           investment flows, and superior business
                                                                                        and provides the contact between Official
                                           performance for Arab industries.
                                                                                        Organisations, investors, professional
                                           APEA's core mission is to increase
                                                                                        advisers, business schools and other
                                           the role of this young but rapidly
                                                                                        relevant institutions. At the end of
                                           growing industry in the Arab world,
                                                                                        May 2005, ASCRI had 84 full members
                                           and strengthen the performance
                                                                                        and 28 associate members.
                                           of private equity investment in the
                                           emerging Arab market.                        The ASCRI’s 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.


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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    ATIC                                                                                                                          AVCA
(The Tunisian Venture Capital                                                       ATIC's third objective no less important    (The African Venture Capital
Association)                                                                        is to inculcate the right private equity    Association)
                                                                                    and venture capital culture to local
ATIC (Association Tunisienne des                                                                                                AVCA 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 Yaoundé, Cameroon.
                                                                                    their European or US counterparts.
the field of Private Equity and Venture                                                                                         AVCA’s 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 Tunisian                                                                                            AVCA’s objectives are to represent the
                                                                                    according to international standards,
authorities to introduce the appropriate                                                                                        industry 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 of                                                                                          of the industry throughout Africa,
the private equity and venture capital                                                                                          stimulate 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. AVCA’s activities
                                                                                                                                include an annual industry conference, a
                                                                                                                                quarterly newsletter, research, training
                                                                                                                                and advocacy programs. For more
                                                                                                                                information visit the AVCA website
                                                                                                                                www.avcanet.com.
  AVCAL                                       AVCO                                       • In addition it takes the role of an
                                                                                           interface to international organisations
(The Australian Venture Capital             (The Austrian Private Equity and
                                                                                           ex-changing experience, information
Association)                                Venture Capital Organisation)
                                                                                           and knowl-edge with other Private
AVCAL represents the interests of           AVCO is the National Association of            Equity and Venture Capital
Australia’s venture capital & private       Austria's Private Equity and Venture           Associations in Europe, with the
equity industry.                            Capital industry, which covers more            Euro-pean Commission and further
                                            than 90% of the Austrian Private Equity        relevant institu-tions in order to put
AVCAL’s 50 investor members have
                                            market with its members.                       inter-national best practice at work
A$10 billion under management.
                                                                                           for Austria.
AVCAL’s roles include: promotion of         • It works as a knowledgeable partner
the industry, education of practitioners,     and independ-ent information point         Currently AVCO is engaged to initiate
public policy development, staging            for journalists, entrepre-neurs,           internationally favourable private equity
networking events, application of             potential investors, private and public    fund structures for Austria and recently
valuation & disclosure guidelines,            institu-tions as well as international     AVCO has published Investor Relations
benchmarking IRRs, development of             bodies that are interested in Austria’s    Guidelines – behavioural standards for its
industry standard Limited Partnership         Private Equity industry, its               members vis-à-vis their fund investors –
agreement.                                    development and struc-ture as well         in order to raise transparency and faith
                                              as its activi-ties and performance.        in Private Equity as a professional asset
AVCAL conducts about 40 networking
                                            • It acts as the official representative     class in Austria. In line with these efforts
events annually across Australia, and
                                              of the industry actively engaged in        AVCO welcomes the International
leverages its online presence at
                                              improving the tax-related, legal and       Private Equity and Venture Capital
www.avcal.com.au for maximum
                                              economic policy environments in close      Guidelines and will be eager to support
efficiency.
                                              connection with respec-tive policy         their introduction and accurate
                                              makers.                                    application by its members.
                                            • As a proactive networking institution
                                              it promotes co-operation inside the
                                              industry as well as interaction with
                                              com-plementary players from other
                                              fields in order to intensify information
                                              flows and create learning loops.
                                                                                                                                        39
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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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    BVA                                                                                                                          BVCA
(The Belgian Venturing Association)                                                 2. Promote the well being of the Belgian   (The British Venture Capital
                                                                                       private equity and venture capital      Association)
BVA was founded in 1986 as a
                                                                                       industry towards all relevant third
professional association.                                                                                                      The BVCA represents around 170 UK-
                                                                                       parties. The objectives of the
Its mission is to:                                                                                                             based private equity and venture capital
                                                                                       promotional activities are: to pro-
                                                                                                                               firms, the vast majority of all such firms
1. Animate the Belgian private equity                                                  actively represent the Belgian VC/PE
                                                                                                                               in the UK. The BVCA is the public face
   and venture capital industry by                                                     industry to third parties as the
                                                                                                                               of the industry providing services to its
   deploying a series of activities for its                                            industry's recognized spokesperson,
                                                                                                                               members, investors and entrepreneurs
   members and for other stakeholders                                                  to conduct active lobbying for
                                                                                                                               as well as the Government and media.
   in the prosperity of the VC/PE sector                                               (i) improvements to or (ii) the
   in Belgium. The objectives of the main                                              removal of obstacles from the
   animation activities are: to foster                                                 structural context in which the
   active networking amongst members                                                   Belgian VC/PE industry operates,
   of the BVA and between members of                                                   to contribute to the continuous
   the BVA and other third parties, to                                                 development of business in our
   provide extensive information to its                                                industry.
   members on all topics relevant to the
   VC/PE industry, to improve the
   quality of the operation of the sector.
  BVK                                                                                    CVCA
(Bundesverband Deutscher                   Science and research are becoming more      (Canada’s Venture Capital &
Kapitalbeteiligungsgesellschaften –        and more interested in private equity and   Private Equity Association)
German Private Equity and                  venture capital issues. BVK supports
                                                                                       The CVCA - Canada’s Venture Capital &
Venture Capital Association e. V.)         universities, colleges and their students
                                                                                       Private Equity Association, was founded
                                           with their research activities and
BVK was founded in 1989.                                                               in 1974 and is the association that
                                           problem solving.
BVK represents most of the German                                                      represents Canada’s venture capital
private equity and venture capital firms   On the international level BVK              and private equity industry.
as well as the German branches of          exchanges information with other            Its over 1100 members are firms and
foreign private equity and venture         national organizations in the economic      organizations which manage the
capital firms. As per March 31, 2005,      sector and other international private      majority of Canada’s pools of capital
BVK represented more than 180 private      equity and venture capital associations.    designated to be committed to venture
equity and venture capital firms.                                                      capital and private equity investments.
Apart from full membership BVK offers
                                                                                       The CVCA fosters professional
associate membership to companies and
                                                                                       development, networking, communication,
organizations working in this particular
                                                                                       research and education within the
business sector, i. e. accountants,
                                                                                       venture capital and private equity sector
lawyers, consultants etc.
                                                                                       and represents the industry in tax and
BVK serves as a link between                                                           regulatory matters.
government and business and represents
its members’ views, needs and problems
while supplying information and
discussing any particular political and
economic subject with the relevant
governmental institutions.




                                                                                                                                   41
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   42
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    CVCA                                                                                DVCA                                    EVCA
(Czech Venture Capital and                                                          (The Danish Venture Capital               (European Private Equity and
Private Equity Association)                                                         Association)                              Venture Capital Association)
CVCA is an association representing                                                 DVCA is an association with the goal      EVCA was established in 1983 and is
companies active in the private equity                                              of strengthening its member’s business,   based in Brussels. EVCA represents
and venture capital industry in the                                                 network, and competences.                 the European private equity sector and
Czech Republic. CVCA has full                                                       DVCA includes a broad range of high       promotes the asset class both within
members (private equity and venture                                                 tech investors in Denmark.                Europe and throughout the world.
capital fund managers) and associated                                               Furthermore the organisation covers the   With well over 900 members in Europe,
members (companies providing advisory                                               whole investment chain from individual    EVCA’s role includes representing the
services to the private equity and                                                  business angels over venture capital      interests of the industry to regulators
venture capital industry). CVCA has 14                                              companies to private equity and           and standard setters, developing
full members and 16 associated members                                              institutional investors.                  professional standards, providing
as of May 2005.                                                                                                               industry research, professional
                                                                                    DVCA was founded in 2000 and was in
                                                                                                                              development and forums facilitating
CVCA’s priorities are: increasing the                                               2004 merged with the formerly known
                                                                                                                              interaction between its members and
awareness about private equity/venture                                              Danish Business Angel Network.
                                                                                                                              key industry participants including
capital among entrepreneurs, state                                                  The association is situated in the Old
                                                                                                                              institutional investors, entrepreneurs,
administration and general public,                                                  Stock Exchange, Slotsholmsgade,
                                                                                                                              policymakers and academics.
promoting interests of CVCA members                                                 Copenhagen. For more information
in contact with the government and                                                  please visit www.dvca.dk
other state authorities, providing
information on the private equity/
venture capital industry in the Czech
Republic, providing platform for
discussion among members of CVCA.
  FVCA                                       HKVCA
(The Finnish Venture Capital               (Hong Kong Venture Capital                  The Association provides an effective
Association)                               Association)                                channel of communication for members
                                                                                       to share information on developments
In 2005 the Finnish Venture Capital        Hong Kong Venture Capital Association
                                                                                       within the industry in Hong Kong/PRC
Association (FVCA) celebrates it’s         was established on November 12, 1987
                                                                                       as well as on a regional and international
15th year anniversary. The FVCA is         with the objectives of promoting and
                                                                                       level. It also works closely with the
a non-profit organisation representing     protecting the interests of the venture
                                                                                       government and various trade bodies to
the Finnish venture capital and private    capital and private equity industry,
                                                                                       further the interests of the industry.
equity industry. The FVCA´s main           networking and cooperation on regional
mission is to promote and develop          and international front, and in raising
the venture capital and private equity     the professional standards of the market.
industry in Finland. The main tasks are
                                           Its 120 members are engaged in all levels
public affairs, lobbying, networking and
                                           of venture capital, expansion capital and
research. The FVCA has 43 full members.
                                           buyout activities in China, Japan,
This represents the vast majority of
                                           Korea, Australia, Taiwan, Thailand,
the Finnish venture capital and private
                                           Singapore, and other markets in Asia.
equity companies. Full membership has
been approved for equity investors and     It is committed to the promotion of the
risk financiers representing private and   venture capital industry as a financial
public investment capital, captive funds   and business partner to businesses
and corporate ventures. In addition,       and the creation of an environment
the FVCA has 68 associate members.         that creates sound partnerships.
Associate membership can be given          It is dedicated to developing a high
to organisations and individuals with      standard of professionalism in the
an interest in the venture capital and     market to ensure investor confidence
private equity industry.                   in the asset class.




                                                                                                                                    43
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   44
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    HVCA                                                                                ILPA                                      IVCA
(The Hungarian Venture Capital and                                                  (The Institutional Limited Partners         (The Irish Venture Capital
Private Equity Association)                                                         Association)                                Association)
HVCA represents virtually every major                                               The ILPA is a non-profit organization       The IVCA is the representative body of
source of funds and expertise of private                                            committed to serving limited partner        the venture capital industry in Ireland.
equity in Hungary. HVCA aims to                                                     investors in the global private equity      The association was established in 1985
promote the development of the                                                      industry by providing a forum for:          to represent the views of its members
industry, and to create and follow                                                  facilitating value-added communication,     and to promote the Irish venture capital
the highest possible professional                                                   enhancing education in the asset class,     industry. We seek to encourage co-
and ethical standards.                                                              and promoting research and standards        operation and best practices within
                                                                                    in the private equity industry              the industry and to facilitate those
HCVA was set up in 1991 and has
                                                                                                                                seeking venture capital. The IVCA
developed considerably since then:                                                  Initially founded as an informal
                                                                                                                                also continuously works with those
the original five members have grown                                                networking group, the ILPA is a
                                                                                                                                individuals and organisations committed
to 26 full members, 29 associate                                                    voluntary association funded by its
                                                                                                                                to fostering an economic and regulatory
members and 9 individual members.                                                   members. The ILPA membership has
                                                                                                                                climate conducive to the growth and
                                                                                    grown to include more than 138 member
The Association provides a regular                                                                                              development of an enterprising economy
                                                                                    organizations from 10 countries, who
forum for the exchange of ideas among
                                                                                    in total have assets under management
members, high-level discussions on the
                                                                                    in excess of two trillion U.S. dollars.
topical issues of the venture capital and
                                                                                    Members of the ILPA manage more than
private equity industry and the future
                                                                                    US$300 billion of private equity capital.
trends. As the official representative of
the industry it is in constant discussion                                           The ILPA membership comprises
with the financial and legislator                                                   corporate and public pension plans,
institutions of the Hungarian State and                                             endowments and foundations, insurance
with other professional organisations.                                              companies and other institutional
                                                                                    investors in private equity.
                                                                                    The ILPA holds semi-annual meetings
                                                                                    for members.
  LVCA                                        NVCA
(The Latvian Venture Capital                (The Norwegian Venture Capital &            NVCA provides knowledge, analysis
Association)                                Private Equity Association)                 and general information to the
                                                                                        Government and media to communicate
To promote the development of venture       NVCA is a non-profit association
                                                                                        the importance of the industry and it’s
capital sector in Latvia, the six biggest   supporting the interests of the companies
                                                                                        role in the national innovation system
companies that operate in the venture       active in the Norwegian industry.
                                                                                        and the general industrial development
capital sector in Latvia have founded a     NVCA was established in 2001 by the
                                                                                        in Norway.
public organization: the Latvian Venture    leading players, and represents today
Capital Association. The founders of        around 40 Norway-based private equity       NVCA is in this way the public face
the association are fund management         and venture capital firms, the vast         of the industry providing services to its
companies that manage investment            majority of such firms in Norway.           members, investors and entrepreneurs
funds of different value and function       The 20 associated members are service       as well as the Government and media.
profile.                                    providers to the industry such as
                                            lawyers, advisors, investors and
LVCA has the following missions: to
                                            corporate finance companies.
inform businessmen and society about
venture capital financing possibilities,    The purpose of the association is
to promote the exchange of opinions         to promote an efficient private equity
and experience of the members of the        market, to improve the regulations of the
association, to represent opinions and      industry, to promote entrepreneurship
interests of the members in negotiations    and to ensure political focus on Norway’s
with public authorities, to organize and    position as a strong and attractive
to ensure cooperation with international    country for international investments.
or other countries’ venture capital
associations.




                                                                                                                                    45
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   46
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    NVP                                                                                 PPEA                                        R É S EA U C A P I TA L
(Nederlandse Vereniging van                                                         (Polish Private Equity Association)           (The Québec Venture Capital and
Participatiemaatschappijen)                                                                                                       Private Equity Association)
                                                                                    PPEA gathers private equity/venture
The Dutch Private Equity & Venture                                                  capital funds active in Poland. The mission   The Québec Venture Capital and Private
Capital Association acts in the interests                                           of PPEA, established in January 2002, is      Equity Association has more than
of private equity companies in the                                                  to promote and develop the private equity     500 members who represent public and
Netherlands. The aims of the NVP are: in                                            and venture capital (pe/vc) industry in       private venture capital companies as
cooperation with the government, work                                               Poland and to represent the interests of      well as firms of professionals serving
on an adequate regulatory framework for                                             the Polish pe/vc community in Poland and      the industry.
the private equity sector and its clients;                                          abroad. PPEA comprises 51 institutions:
                                                                                                                                  Mission and Organizational Structure
inform entrepreneurs and businesses                                                 29 full members, representing most of the
                                                                                                                                  Réseau Capital is an association of key
about the financing possibilities of private                                        private equity firms active in poland and
                                                                                                                                  players in the private equity and venture
equity; inform investors about the                                                  22 Associate Members that are law and
                                                                                                                                  capital industry. Its mission is to foster
characteristics of private equity as an                                             consulting companies working for pe/vc
                                                                                                                                  the growth of the industry and the
asset class; raise awareness and improve                                            industry. The full members manage more
                                                                                                                                  professional development of its members
the image of private equity to achieve                                              than EUR 4.5bn and have currently
                                                                                                                                  through a range of services and activities,
aforementioned goals; contribute to                                                 nearly 300 Polish companies and over
                                                                                                                                  such as training, information, networking
further raising the level of professionalism                                        50 companies in other CEE countries on
                                                                                                                                  and promotion of their interests.
of the private equity sector.                                                       their portfolios.
                                                                                                                                  Principal Objectives
The NVP has about 50 members and                                                    PPEA has established a number of
                                                                                                                                  To further the development of a business
50 associated members. Members of                                                   committees to work on PPEA policy and
                                                                                                                                  environment favourable to the venture
the NVP represent 95% of the number                                                 actions. The committees bring together full
                                                                                                                                  capital community, notably, through
of private equity investments and about                                             and associate members who represent
                                                                                                                                  training activities; To establish an
85% of the total invested capital in the                                            their areas of expertise. To date, PPEA
                                                                                                                                  efficient network of relations and
Netherlands.                                                                        has established committees to work on the
                                                                                                                                  communications between the industry's
                                                                                    following areas: corporate governance,
More information about the activities of                                                                                          stakeholders; To promote venture capital
                                                                                    legal and lobbying, pension funds and
the NVP and its members can be found                                                                                              as an efficient tool for the development of
                                                                                    other domestic investors, SME financing
on www.nvp.nl.                                                                                                                    Québec businesses, and to promote other
                                                                                    and innovations, and statistics.
                                                                                                                                  organizations tied into the industry
  RVCA                                           SAVCA
(The Russian Private Equity and                (The Southern African Venture               The main objectives of SAVCA are to:
Venture Capital Association)                   Capital and Private Equity                  promote the venture capital and private
                                               Association)                                equity profession in Southern Africa;
RVCA was set up in 1997. The central
                                                                                           represent the profession at the national
office of RVCA is situated in St.Petersburg.   SAVCA is a non-profit Section 21
                                                                                           and international level; develop and
By today RVCA unites about 40 members          Company based in South Africa
                                                                                           stimulate professional and transactional
more than half of them are private equity      that represents the interests of the
                                                                                           venture capital and private equity
and venture capital funds.                     participants of the Private Equity and
                                                                                           investments; stimulate the expansion
                                               Venture Capital industry in Southern
RVCA’s mission is to contribute to                                                         of venture capital and private equity;
                                               Africa. All the key participants in the
establishment and development of                                                           collect information from markets and
                                               industry are members of the Association.
venture industry in Russia.                                                                from members; circulate information;
                                               Full membership of SAVCA provides
                                                                                           stimulate and maintain contacts within
RVCA’s goals are: to create a political and    a high level of endorsement and denotes
                                                                                           the membership; contribute to the
entrepreneurial environment favorable          a high level of professionalism and
                                                                                           management development of investors
for investment activity in Russia, to          integrity for the member firm.
                                                                                           and investees; provide the relevant
represent RVCA’s interests in political
                                               SAVCA plays a meaningful role in the        authorities with proposals for
and administrative agencies, in mass
                                               Southern African Venture Capital and        improvement in the corporate, fiscal
media, in financial and industrial circles
                                               Private Equity industry by promoting        and legal environment for venture
in Russia and abroad, to provide
                                               the industry and its members, promoting     capital and private equity in Southern
informational support and create
                                               self-regulation, setting professional       Africa; and maintain ethical and
communicative forums for Russian
                                               standards, lobbying, disseminating          professional standards.
venture market players, to create the
                                               information on the industry, arranging
stratum of experts qualified to work in
                                               training for the staff of its members and
venture business companies. RVCA is the
                                               researching the industry in South Africa.
unique professional organization in
Russia units the progressive financial
institutions investing in private Russian
companies. RVCA is generally accepted
in the business community and by the
Russian Government.                                                                                                                   47
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   48
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    SECA                                                                                                                          SLOVCA
(The Swiss Private Equity and                                                       In addition to promoting corporate          (The Slovak Venture Capital
Corporate Finance Association)                                                      finance in the public, SECA provides        Association)
                                                                                    a platform to its members to exchange
SECA is the representative body for                                                                                             SLOVCA was created in 1995 with
                                                                                    information and experiences. The main
Switzerland’s private equity, venture                                                                                           primary purpose to increase the
                                                                                    activities of SECA are: seminars and
capital and corporate finance industries.                                                                                       awareness of private equity and venture
                                                                                    events about relevant topics, publication
SECA has the objective to promote                                                                                               capital to the public, such as the
                                                                                    of statistics about private equity
private equity and corporate finance                                                                                            entrepreneurs, investment and banking
                                                                                    investment and management buyout
activities in Switzerland.                                                                                                      institutions and the economic, political
                                                                                    activities in Switzerland, quarterly
                                                                                                                                and regulatory bodies in Slovakia.
Members of the SECA include equity                                                  edition of a newsletter SECA News
investment companies, Banks,                                                        (for members only), contacts of other       The mission of SLOVCA includes five
Corporate Finance Advisors, Auditing                                                associations and state bodies.              key objectives: to provide information
Companies, Management Consultants                                                                                               to those seeking capital for new and
and Private Investors.                                                                                                          existing enterprises, to represent the
                                                                                                                                interests of members before the
The association is a non-profit
                                                                                                                                government and other related
organization and has the following
                                                                                                                                institutions/agencies, to provide a forum
purposes: to promote corporate finance
                                                                                                                                for networking for members to exchange
and private equity activities in the public
                                                                                                                                views and practices, to provide
and the relevant target groups, to
                                                                                                                                education and training for members of
promote the exchange of ideas and
                                                                                                                                SLOVCA and others, to encourage the
the cooperation between members, to
                                                                                                                                highest standards of business practices.
contribute to the professional education
and development of the members and
their clients, to represent the members
views and interests in discussion with
government and other bodies, to
establish and maintain ethical and
professional standards.
N OT E S




           49
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   50
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




    N OT E S
   These guidelines have been developed by the Association Française 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 Association
                                       ASCRI - Spanish Private Equity and Venture Capital Association
                                                            ATIC - Tunisian Venture Capital Association
                                                             AVCA - African Venture Capital Association
                                                        AVCAL - Australian Venture Capital Association
                                      AVCO - Austrian Private Equity and Venture Capital Organization
                                                                    BVA - Belgian Venturing Association
                                     BVK - German Private Equity and Venture Capital Association e.V.
                                       CVCA - Canada’s Venture Capital and Private Equity Association
                                         CVCA - Czech Venture Capital and Private Equity Association
                                                            DVCA - Danish Venture Capital Association
                                                            FVCA - Finnish Venture Capital Association
                                                      HKVCA - Hong Kong Venture Capital Association
                                     HVCA - Hungarian Venture Capital and Private Equity Association
                                                        ILPA - Institutional Limited Partners Association
                                                                IVCA - Irish Venture Capital Association
                                                             LVCA - Latvian Venture Capital Association
                                       NVCA - Norwegian Venture Capital & Private Equity Association
                                          NVP - Nederlandse Vereniging van Participatiemaatschappijen
                                                               PPEA - Polish Private Equity Association
                                 Réseau Capital - Québec Venture Capital and Private Equity Association
                                        RVCA - Russian Private Equity and Venture Capital Association
                               SAVCA - 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)
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, RÉSEAU CAPITAL, RVCA, SAVCA, SECA, SLOVCA

(Endorsement as of 1st of November 2005)




For further information please visit: www.privateequityvaluation.com

								
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