We began this blog in August 2013 with the mission to keep you, the reader, current on the latest financial reporting news. After over 200 posts and a book, it’s time to bid the blog farewell. Over the years, we have appreciated your readership, feedback, and support. Even though the blog is ceasing publication, we are committed to continuing our mission in a different format.
It seems fitting that we end the blog with a look back to 2017 and our 10 most popular posts for the year.
Accounting Standards Update 2016-01 has generally flown under the radar since it was released almost two years ago. However, this accounting update has the potential to significantly affect financial reporting by public and private companies with minority equity investments – including corporate entities with a portfolio of venture capital investments. In this post, we release our whitepaper on the topic, which provides an overview of the accounting standards changes as they pertain to companies with equity investments and a few best practice considerations for firms with exposure to these changes.
Accounting Standards Update 2016-01 has generally flown under the radar since it was released almost two years ago. However, this accounting update has the potential to significantly affect financial reporting by public and private companies with minority equity investments – including corporate entities with a portfolio of venture capital investments.
In Barron’s November 20 cover story, “The Trouble with Unicorns,” Alex Eule discusses some of the finer points of venture-stage valuation that are often overlooked in the press.
Global accounting standards increasingly call for financial measurements and disclosures that comply with a defined measurement objective, such as fair value. Additionally, financial instruments are becoming increasingly complex in their terms, conditions, and structure. As a result, the AICPA has announced the creation of a new Disclosure Framework for the Valuation of Financial Instruments (the “DF-FI”) and a new professional credential relating to financial instruments called the CVFI (Certified in Valuation of Financial Instruments).
In our most recent issue of Portfolio Valuation: Private Equity and Venture Capital Marks and Trends, we provide a brief digest and commentary of some of the most relevant market trends influencing the fair value of private equity and venture capital portfolio investments.
Do you have a clear picture of your company’s value and do you know if you are creating value in your early-stage FinTech company? Our upcoming webinar, hosted by Jay D. Wilson Jr., CFA, ASA, CBA, will identify the key value drivers for an early-stage FinTech company for investors, entrepreneurs, and potential partners.
This week, we feature two stories & one study, each of which highlights the need to analyze venture transactions in their entirety, rather than price.
Applications for patents in the U.S. have nearly tripled over the past 20 years. Perhaps increased innovation, more cutthroat competitive practices, and an uptick in litigious activity surrounding idea ownership are to credit. One thing that is clear is that there are many implications of filing a patent beyond just its ability to enforce exclusivity of an idea – for founders and investors alike.
In our most recent issue of Portfolio Valuation: Private Equity and Venture Capital Marks and Trends, we provide a brief digest and commentary of some of the most relevant market trends influencing the fair value of private equity and venture capital portfolio investments.
From our perspective, contractual (and/or customary) rights and preferences allocated among the various parties to a transaction define the parameters within which we operate while measuring fair value. That being said, the extent to which differential shareholder rights can or cannot be (legally or normatively) enforced may inform the assumptions and expectations of market participants, be they VC investors or startup employees. And those market participant perspectives will inform the valuation analysts’ assumptions and methods.
In October 2015, the SEC adopted final rules governing the crowdfunding of startups and Regulation Crowdfunding was issued in May 2016. Subsequently, the SEC has issued investor bulletin(s) to educate potential investors on the new investing opportunities. The new rules allow non-accredited investors to invest directly in startup (and other) companies that can raise up to $1 million every twelve months through crowdfunding. At the time the SEC first proposed the rules in October 2013, we speculated that crowdfunding might turn into a new source of capital for small businesses. Now, a year after Regulation Crowdfunding came into effect, we take a look at the state of crowdfunding.
The rules are changing for how companies report their investments in other businesses. As highlighted in a recent article in the New York Times, new rules from the FASB regarding how entities will have to measure certain equity investments (for example, Google’s equity holdings in Uber) may lead to increased earnings volatility and additional fair value complexities. Here are five things to know about the “new” rules and a few questions to consider as the implementation dates approach.
A couple of articles in the Wall Street Journal last week highlighted challenges of managing and investing in early-stage companies. From a valuation standpoint, the articles are timely reminders of the importance of cash burn rates, dilution factors, and exit probabilities in measuring the fair value of startups.
With the rapid rise of corporate venture capital and increasing pressure to jump on board with startups, it seems that many companies across the industry spectrum are making venture investments.
David Einhorn of Greenlight Capital Inc. is no stranger to controversy. His current project is General Motors Corp. He put a flashlight on its common shares on March 28 arguing that they are unreasonably cheap. Immediately before the proposal was made GM’s shares were trading just below $35 per share, which equates to 5.8x 2016 earnings of $6.00 per share and 5.6x the midpoint of management’s 2017 guidance ($6.25 per share). The dividend yield is high at 4.4%, more than double the yield of the S&P 500. As Einhorn points out, the yield is not high because the payout ratio is high; the $1.52 per share dividend equates to just one quarter of (current) earnings.
l was struck by how the Ruth’s Chris Steak House in Lafayette, La. was packed on a mid-March Tuesday night. When I ate there a year ago, I was one of a half-dozen people in the restaurant. Perhaps it is just a coincidence, but the price of oil nearly doubled over that period. The regional economy may not be that responsive to moves in the price of crude, but people’s reaction of being tight-fisted vs. loosening-up can change quickly based upon perceptions.
Over the past decade, we have been retained by several investment funds to assist them in responding to formal and informal SEC investigations regarding fair value measurement of portfolio investments. Reflecting back on those engagements yields a couple observations and reminders for funds and fund managers as they go through the quarterly valuation process.
We have published a collection of these posts in a book entitled “Market Participant Perspectives: Selections from Mercer Capital’s Financial Reporting Blog.” For our existing clients and blog subscribers, we hope that the book uncovers a post or two of interest that you might have missed the first time around. For clients that we haven’t met yet, there’s probably no better introduction to our team than the collection of posts in this book.
“So why be constructive on private credit when one of the tenets of the central banks’ zero and negative interest rate policies is to push investors to take more risk? Maybe it is misplaced, but I think there is more value (all else equal) in high current income than waiting on a terminal value when asset values are inflated.”
We continue our discussion on the OPM, addressing the model from a more qualitative perspective and evaluating the model’s use and potential misuse in practical application.
The option pricing model, or OPM, is one of the shiniest new tools in the valuation specialist’s toolkit. While specialists have grown accustomed to working with the tool and have faith in the results of its use, many non-specialists remain wary, as the model – and its typical presentation – has all the trappings of a proverbial black box. The purpose of this post is to clarify the fundamental insight underlying the model and illustrate its application so that non-specialist users of valuation reports can gain greater comfort with the model. In Part 2, we will provide address some qualitative concerns regarding use of the method in practice.
As mutual fund flows continue to favor passive strategies, some active fund managers are beginning to look to alternative asset classes to augment returns and generate sustainable alpha. Since open-end funds need to calculate NAV on a daily basis, the inclusion of illiquid venture capital investments in liquid funds shines a brighter spotlight on fair value measurement.
Despite a strong year in the FinTech sector, IPO pricing is always tricky, especially in the tech space. In this post, we consider Square’s IPO and how preferences associated with shares affect valuations.