Portfolio Valuation - An Introduction
Portfolio Valuation refers to the process of determining the worth or fair market value of a company or companies held within a portfolio, such as in a venture capital or private equity portfolio. Valuation is a critical aspect for investors, as it helps them understand the potential returns, and risks associated with their investments, report to the stakeholders, update net asset value, present the notional return for the upcoming funds, etc.
The valuation procedure plays a crucial role in making informed decisions regarding the exit or hold strategy and further investment strategy for the PE/VCs. Several factors including economic, industry, and company-specific considerations need to be addressed while concluding the valuation of portfolio companies. With emerging business models, lots of challenges arise with the use of the most appropriate valuation methodology considering the value drivers and market conditions. Now, let’s delve into a case study to examine the valuation of a portfolio company.