For What It's Worth!

New FAS 157-g Valuation Guidance

Mon, 15 Jun 2009 14:54:50 -0700

Late last week, the FASB released FSB FAS 157-g -- the proposed staff position of the FASB regarding the valuation and reporting of interests held by investment companies, specifically, private equity and venture capital firms. The primary focus of the staff's attention is on the applicability of adjustments (i.e. discounts) applied to the reported net asset value. The concern is that a limited partner's interest is some amount less than the NAV reported by the general partner. We encourage you to review the statement and share any thoughts or comments with our team. We will submit a comment by the July 9th deadline and keep you posted on the final outcome.

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176156228477

BOOT Camp - Lessons learned from West Point

Thu, 14 May 2009 12:10:12 -0700

I just returned from Village Venture's CEO & Partner Fund Leadership Boot Camp. Quist was one of the sponsors of the event held at West Point to discuss leadership in times of crisis. It was an incredibly unique and rewarding experience. The lessons of what is required to successfully lead troops into battle were amazingly applicable to the challenges entrepreneurs face in leading their companies through difficult economic times.

A Tale of Two GPs

Tue, 28 Apr 2009 14:46:34 -0700

As an investor that dabbles in alternative investments, I now understand the confusion FAS157 has generated for LPs. I was digging through my audited financials for year-end and noticed some dramatic differences in reported fair value. How dramatic? - 4x dramatic. This is for the identical company, same classes of stock and same valuation date. Fair value reported for one GP was 4x what the other reported:

Both of these particular general partners use Big 4 auditors. So am I making any money? I think I know that answer....

Spring = Baseball

Thu, 23 Apr 2009 17:00:32 -0700

With Boulder scheduled to have our first 80 degree day today - what else can you do but head outside:

We clearly have the little league championship wrapped up!

Sunny Seattle?

Tue, 14 Apr 2009 14:56:51 -0700

Seattle gets a bad rap for having perpetual clouds - but Tuesday was postcard perfect. I didn't take the picture below, but in my previous visits to the area I have never seen Seattle under sunny skies, and it was spectacular. I spent a few days making the rounds, visiting start-ups, lawyers, auditors and VCs. The news on the ground was also positive. Many companies are continuing to execute in this tough environment and the other piece of good news is the level of capital available in the region.

A common refrain at Venture Capital in the Rockies last month was the lack of dry powder for new investments. With over $1 billion flowing into Pacific Northwest funds over the last few years, there's still plenty of capital of available here. I'm looking forward to my next visit - hopefully the sun will still be shining.

Solving the Q Cube

Fri, 27 Mar 2009 17:09:40 -0700

Are you still struggling to solve the Q Cube? For those who didn't have the pleasure of attending Venture Capital in the Rockies this year, we created a customized Rubik's cube to celebrate 25 years of solving our client's complex valuation problems:

Solving complex problems isn't easy, so if you're stuck on solving the Q Cube, step-by-step instructions can be found at:

http://www.chessandpoker.com/rubiks-cube-solution.html

Since 1984, Quist Valuation has provided valuation solutions that reduce risk through analytics. Over 25 years and 3,000 engagements. Experience Quist, 25 years of excellence.

VC and Clean Tech in Colorado

Fri, 27 Mar 2009 14:32:50 -0700

By all accounts, the VC environment is terrible (no doubt due to the global economic "meltdown"). With the credit crunch and liquidity crisis hitting so many, raising new capital is extremely difficult. But, the new administration has been unequivocal in its support of clean technology for all the obvious reasons: global warming, economic stability, national security. And, as such, Clean Tech will be the next growth engine for this (and the world) economy. Colorado seems poised to take advantage as a home to investment capital, start-ups and resources. Even while most VC firms are in a holding pattern unable to raise new monies, Boulder-base Infield Capital raised a $50 million fund last year to focus on clean technology for the transportation industry. Colorado is home to many start-up companies dedicated to the development of green technologies. Boulder's power grid is becoming a smart-grid with help from Xcel Energy. Southeastern Colorado may become site to the nation's largest solar farm, also courtesy of Xcel. Outside of California, Colorado may very well be ground-zero for the Clean Tech movement...

Spring Conditions

Tue, 10 Mar 2009 12:10:54 -0700

It's taken me a few days to reflect on this past week at VCIR. Partly, because I spent a couple hours (literally) doing a single long-run with my six year old who's just getting the hang of skiing (bad idea Dad - "let's just take the express lift all the way up"). As well as trying to rationalize the continued falling of the Dow (an intraday low below 6,500 - wow). The lot of CEOs and management teams on display was solid as usual for VCIR, yet there seemed to be a great deal of uncertainty at the conference. The venture capital community is not a group of pessimists so don't get the wrong idea. In fact, if anyone believes in a brighter future and that smart, dedicated entrepreneurs will change the world we live in, this is the group. While I am sure that everyone at the conference had a different take on the reason or amount of uncertainty, for me the anxiety is simple - it's the economy, stupid. We have been fortunate to work with great management teams with great ideas that are meeting and beating expectations, changing their plans when necessary on a dime, rethinking the right way to approach the market, dedicated to a vision, a strategy, a future, most of which currently were developed based on the economy of 12 to 18 months ago. How will today's market impact their business? Can they survive the contraction? Can they get more money? Can they become profitable in time? Can they sell in a market void of buyers?

The simple fact is that the ski report in BeaverCreek this year says it all -

Spring Conditions: This is the spring version of Variable Conditions. Like variable conditions, this term is used when no one surface can describe 70% of the terrain open for skiing. It is not uncommon for other evidence of spring to be present such as a bare spot, a discolored surface from melting and traffic

Watch out as you might just hit a bare spot! Just in case you're not a skier, a bare spot can launch you flat on your face and yes it hurts. On the other hand, there is nothing like skiing in Colorado when the bumps are soft, you can leave your jacket in the car, and the most important thing to remember is sunscreen.

Venture Capital in the Rockies: 2009

Fri, 06 Mar 2009 16:08:45 -0700

Over 300 venture investors, CEOs, entrepreneurs and service professionals gathered in unseasonably warm Beaver Creek, CO to sneak a peak at some of the most promising emerging growth companies in the Rocky Mountain region this week. In addition to the 24 presenting companies, there was also a media panel moderated by Brad Feld of Foundry Group, which included Spencer Ante of BusinessWeek, Rebecca Buckman of Forbes, Dan Primack of peHUB Wire and Mark Veverka of Barron's. The panel discussed the dramatic changes facing journalism as well as the difficulties in the venture community. One highlight was when asked for their most interesting venture-backed company, Dan Primack responded with cash4gold.com. It was apropos as cash was on everyone's mind.

BVR Fair Value Conference

Fri, 27 Feb 2009 10:15:46 -0700

I just returned from BVR's 2nd Annual "Fair Value for Financial Reporting" Summit in New York. While other conferences tend to be shrinking in attendance, this event nearly doubled in size from last year. While I would like to think that my participation played a role, I think the concern over FAS 157 was more the cause.

The Summit included speakers from each of the Big 4 Valuation groups, a member of the SEC, FASB and the PCAOB. I guess Fair Value is not to be taken lightly. In addition, we heard from Cindy Ma of HLHZ discuss the valuation of Auction Rate Securities, Lynn Webber of Duff & Phelps on valuing contingent liabilities and Aswath Damodaran (NYU) discuss the merits of 157.

Death and Taxes

Thu, 15 Jan 2009 16:01:38 -0700

The "Death Tax Repeal" movement may be on its last legs, as the WSJ reported Monday that President-elect Barack Obama announced plans to refute the disappearance of the estate tax in 2010. This doesn't come as much of a surprise, as it is seen by Democrats as an opportunity to aid the soaring deficit without raising income taxes during times of recession.

Currently, the bill signed in 2001 by President George W. Bush allows for gradual phase out of estate tax (which if not repealed is set to disappear in 2010). Preliminary details of the new plan indicate that the rates and exemption levels that are in affect in 2009 would be locked in permanently. That is, estates below $7 million ($3.5 million for singles) will be exempt, whereas those above will be taxed at 45%.

So what does that mean? We will know more next month as the initial plan is released; however, indubitably the affluent will be devoting more time and resources to minimizing the taxable size of their estates, while our friendly tax planning specialists - lawyers, accountants, wealth advisors and valuation experts - will be gearing up for an influx of activity.

Market conditions and common stock valuation

Fri, 24 Oct 2008 10:11:53 -0700

No doubt the last few months have been a roller coaster ride in the capital markets. The unprecedented volatility has driven the economy into a state of perpetual discomfort. With the instability has arisen many questions from our private, venture backed companies. How do these times affect our value, and more importantly, our common stock value? The answer is: it depends.

One of the primary inputs in our 409a common stock analysis is determining the current entity value. This can be affected by the multiples in the market place, which in many industries, have decreased anywhere between 10-40%. On the other hand, M&A data may not be as affected as much as trading data. Depending on how these market inputs work in conjunction with one another can certainly affect a specific company's value.

Another factor to impact current value is the company's current financial situation. The outlook for raising capital is grim for the next 12-18 months, causing a stall in new rounds. VC's are requiring much more aggressive terms, both in new and follow on rounds. The results are twofold: 1) if the Company needs cash in the near future, the risk of obtaining the cash at good terms is amplified; and 2) most VC's are telling their companies to buckle down, cut costs and get to cash flow positive. Consequently, many companies have (or are beginning to) revise projections downward and/or create a set of "base case" projections. This obviously would cause fluctuations in value today.

Bottom line is that value has likely changed and in most cases, value has declined. If your board is uneasy about what price to grant options at, seek help. If you grant options at a stale stock price, then your auditor (who has 20/20 hindsight) will likely have issues and questions during the year-end audit.

FAS 157 and the Fair Value Initiative

Wed, 16 Jul 2008 12:02:01 -0700

I just returned from a trip to San Francisco to attend an accounting conference discussing many of the recent happenings at FASB. No topic was more widely discussed than the pending move to fair-value accounting. There has been a pretty sizeable push toward fair-value over the past 10 years, with FAS 133 (Hedge Accounting) playing a big part. But FAS 157 represents the first attempt to consolidate all things fair-value into one statement.

Overall, I was left with the impression that financial professionals are not going to enjoy this push to fair-value. On the surface, it seems much easier to carry assets & liabilities at their historical cost. But, in my opinion, this shift to fair-value represents an even larger movement towards principals-based accounting (which FASB has long avoided) and a more seismic shift to alignment with International Accounting Standards. Seems like the fun has only just begun. . .

Healthcare Perspectives

Thu, 29 May 2008 20:49:02 -0700

I recently attended a small gathering of analysts for a presentation by McKesson's CFO, Jeff Campbell. A few key takeaways: 1) Healthcare is the slowest industry to adopt new technology. The company that can facilitate this rate of adoption will be the biggest winner. It is less about the technology itself and more about making the process easier to adopt. 2) Total healthcare spending in the US is currently 14% of GDP. That number is expected to reach +19% in 2013. WOW! 3) The golden egg is DATA, when, how and what we do with it will depend on HIPAA and our attitudes toward privacy. However, Google is encouraging users to manage and track all financial data on-line and eventually, someone will be the largest owner of third party data for personal medical records. 4) Auction rate securities - these are not a big issue for those companies that have volatile cash requirements and therefore did not invest in them, but the best course of action from a treasury management point of view, is to move them to long term and wait out the auction process. - I am not sure this will work for companies that have a significant amount of ARS on the balance sheet.

FAS 157 Meets Auction Rate Securities

Tue, 27 May 2008 21:41:56 -0700

Auction rate securities ("ARS") are now entering the infamous collection of securities that no one had heard of until companies began incurring losses from writing them down. ARS are debt instruments with long-term maturities (student loans, municipal bonds, CDOs and preferred stock are typically the underlying securities), but with interest rates that are reset regularly (typically every 7, 28 or 35 days) based on a Dutch auction. With a ready market, the ARS were carried at par on company's balance sheets and were viewed as a safe way to achieve a higher return than short-term bonds. Unfortunately, beginning at the end of 2007, the auctions began failing. By February, 100% of the auctions were failing and the ARS essentially became illiquid. This is where FAS 157 enters the scene. Without a ready market to support valuation at par, companies are being required to determine fair value for the securities.