FIRSTPOST (‘16): Startup valuation markdowns explained: How it affects company, investors, employees
While private market valuations are functions of basic supply-demand venture economics, what markdown of a company means is that the amount that would be fetched if the company were to be sold today is lower than the value it had in the immediate last round of fund raise. It’s the value that an investor ascribes to asset it owns if it decides to sell it off today.
Many a times, mutual funds would look to map private companies they own with similar companies that are listed on exchanges. Sometimes the decision is based on macro outlook, specific events/ factors associated with sectors companies fall into, and their performance metrics over a period of time. Additionally, many of these fund houses have pricing and valuation team that work independently. This should demystify the notion that markdowns are theoretical exercises. They are not. At least not from an investor’s point of view.