From the monthly archives: October 2011

We are pleased to present below all posts archived in 'October 2011'. If you still can't find what you are looking for, try using the search box.

Rules of Thumb

Is there a rule of thumb for valuing common stock relative to preferred?  If a new preferred round is priced at $1.00 per share, can we assume that the value of common is $0.10?  No.  By now, most managers of venture-backed companies understand that the old 10% rule is dead.  The AICPA Practice Aid (Valuation of Privately-Held-Company Equity Securities Issued as Compensation) states “The use of ‘rules of thumb’ is not (and never has been) an appropriate method for estimating the fair value of a company’s common stock.”  Nevertheless, many managers still want to get a sense of the common stock’s value before engaging a valuation specialist.  Once the draft appraisal is completed, managers often respond by saying it doesn’t “feel” right.  The guidance is the guidance, but that doesn’t prevent us from at least asking the question:  mathematically, is there a way we can reliably estimate the value of common r ...

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