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Services and Capabilities
Privately-held companies that reach later stages of development often
contemplate exit strategies for their initial investors. Many such exit
strategies require financial statements that conform to United States
Generally Accepted Accounting Principles (GAAP). This requires proper
recognition of compensation expenses. If the company paid any past
compensation in the form of securities, including options, warrants, and
other derivatives, a retrospective valuation of these securities will
be required.
The valuation of privately-held company equity securities for the purposes of
recognizing compensation expenses under GAAP can present unique challenges to
the valuation analyst. These assignments often involve companies that expect to
experience a liquidity event within a few years.
In 2004, the AICPA released a Practice Aid, aptly named "Valuation of
Privately-Held-Company Equity Securities Issued as Compensation."
Valuations performed in accordance with this Practice Aid may be more
likely to meet the approval of a company's auditors. While all of the
methodologies endorsed by the Practice Aid are recognized in the
valuation community, the Practice Aid often expresses a preference for
the use of one or more methods depending on company characteristics
and/or the circumstances surrounding the valuation assignment.
NERA has previously worked with companies in valuation assignments that
adhere to the guidelines within the Practice Aid for approval by the
companies' auditors and for use in SEC filings.