The National Venture Capital Association (NVCA) refused to throw its weight behind a set of guidelines proposed in December that tried to set industry-wide standards for valuing portfolio companies and calculating fund returns.
Instead, the NVCA urged its members to be open and forthcoming with their limited partners.
Purposefully vague in a statement made last week after its annual meeting, the NVCA recommended that, “its members create, follow and communicate clearly the specific procedures and methodologies used for valuing their portfolios,” and that they conform to Generally Accepted Accounting Principles, when required to. If those are unclear, the NVCA advises firms to take a cursory glance at the proposals set forth by the Private Equity Industry Guidelines Group (PEIGG).
The PEIGG had sought to eliminate that sort of ambiguity when it made its proposals in December. It urged venture firms to evaluate and monitor investment on the best estimate of fair market value. That is, to carry an investment at its current resale value, rather than valuing a portfolio company based on its most recent round of financing.
The group asked VCs to report valuations on a quarterly basis to LPs and to establish valuation guidelines that general partners and limited partners would agree on.
“We’re glad that the NVCA said something, that they were not silent or agnostic on this thing,” says Stephen Holmes, InterWest Partners’ administrative partner in Menlo Park, Calif., and a PEIGG member. “My view of life in general is about taking baby steps. Things evolve as people think, read and change their minds.”
Even when the proposals were unveiled, however, they had little support.
Jim Breyer, a general partner with Accel Partners in Palo Alto, Calif., and the NVCA’s incoming president, expressed his reservations, as did Dick Kramlich, co-founder and general partner with Baltimore-based New Enterprise Associates.
The NVCA did not return calls seeking comment.
The PEIGG is a two-year old consortium of venture capital and buyout shops, institutional investors, industry consultants and attorneys.