VC firms' valuation of their portfolios, which have been largely lagging behind the drops in public equity counterparts, may still be subject to additional downward revisions after year-end audit reviews, according to industry experts.
Why are tech stocks tumbling down by as much as 80% while venture capital portfolios only face single digit losses? Jeff Nasser, deputy CIO at Strategic Investment Group, delves into the reasons behind the discrepancy, explaining that stock valuations are continuously updated while startups are only valued during funding rounds.
Over time, public and private market valuations are expected to converge, but the process may take just as long as it did after the dot-com bubble burst, according to Nasser. Fair-value accounting standards require venture firms to review their investments each quarter to determine value changes.
However, the valuations provided by VC firms to their LPs show that private market prices have yet to catch up to the dramatic drops of their public equity counterparts. Despite the slow write-down process, experts predict that VC benchmarks may decrease another 10-15% following the year-end audit review, putting venture portfolios down 20-25% from their 2021 peak prices.
Full Story: HERE (PitchBook)
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