ASC 820 valuations: Methodologies | support.carta.com

ASC 820 valuations: Methodologies

Choosing accurate and appropriate methodologies for an 820 valuation is dependent on the specifics of each company and each fund’s valuation policy. Factors that influence methodology selection include a company's funding history, historical and projected financials, timing to a liquidity event, and other factors. The following are common methodologies accepted by the AICPA Practice Aid:

• Post-money method: This methodology takes the price paid in the most recent financing multiplied by the number of common stock equivalents.
• Subject company transaction or “Backsolve” method: This methodology consists of examining the values of prior equity transactions of the portfolio company.
• Guideline public company method: This methodology relies on an analysis of publicly traded companies similar in industry and/or business model to the portfolio company. This methodology uses guideline companies to develop relevant market multiples using metrics such as revenue, and/or earnings before interest, taxes, depreciation and amortization (EBITDA). These multiples and values are then applied to your company’s corresponding financial metrics.
• Guideline company transaction method: This methodology relies on an analysis of transactions of companies similar in industry and/or business model to the portfolio company. This methodology uses guideline companies to develop relevant market multiples using metrics such as revenue, and/or earnings before interest, taxes, depreciation and amortization (EBITDA). These multiples and values are then applied to your company’s corresponding financial metrics.
• Income approach: The income approach focuses on the income producing capability of your company, and is commonly known as a discounted cash flow analysis. Carta’s valuation tool does not currently have this capability.