Startups: This is where the impact is the deepest, because having one of your best-known investors slash your valuation is a giant gut punch to the entire company. If a venture capital fund is holding Blue Bottle Coffee at cost, or even at a 10% discount to the most recent financing round, how will it answer limited partners who ask why that number doesn’t match the 43.3% haircut that Fidelity gave Blue Bottle between the end of July and the end of September? Or, conversely, what if they’re holding well below the Fidelity marks (which we know to be true in certain cases)? And how will those limited partners (i.e., the staffers who manage VC fund portfolios) answer their own investment committees? Will it be enough to say that VCs are much closer to Blue Bottle than is Fidelity’s Fair Value Committee, and thus know more? Or will venture fund CFOs spend their weekend recalibrating, in order to get a bit closer to Fidelity (on both the upside and the downside)? And all of this only will be exacerbated at year-end, when third party auditing firms get involved. VCs also are supposed to mark to market – thanks to a 2007 law – but tend not to do so with the same apparent volatility as does Fidelity. Venture capitalists: Most VC funds are in the final stages of preparing quarterly reports, and this could upset the applecart for those that also have companies in common with Fidelity. Fidelity also may need to become more transparent in terms of how they value these companies. In fact, certain Fidelity portfolio managers are said to have called up venture capitalists in the past 48 hours, to better gauge the extent of their reputational damage. After all, why would an entrepreneur without public stock want to risk looking like his company is on the downswing, so long as there are still deep-pocketed alternatives like hedge funds, sovereign wealth funds and family offices. Here is how it could affect each group:įidelity: The firm’s decision to publish regular valuations of privately-held companies – and its sharp markdowns – could make it much more difficult for Fidelity to get into future deals. In fact, several entrepreneurs that have taken money from Fidelity were unaware that such valuations were published in the first place. Venture capitalists also revalue their portfolio companies – on a quarterly basis with annual auditing – but the results only are shared in strict confidence with their own investors.Īnd it’s really this difference between public information and private information that is causing such tumult. Fidelity publishes these valuations on a monthly basis, and provides more detailed information (including share counts and acquisition costs) on a quarterly basis. Moreover, Fidelity has to consider what the shares would be worth were they to be sold now, rather than what they’d be worth when the company is actually ready to go public or be acquired. But it’s much harder to value a privately-held company – with Fidelity creating a valuation matrix that includes such factors as public market comps, private financing prices for similar companies, and the company’s own financial and strategic performance (based on confidential information that Fidelity, as an investor, receives periodically). In most cases, this is as easy as multiplying that day’s closing stock price by the number of shares Fidelity holds. By way of background, Fidelity uses an internal committee to revalue all of its holdings on a daily basis.
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