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1、Growth Equity ValuationU.S.SnapshotPortfolio Valuation and Fund Advisory ServicesMarket UpdateFall 2024Introduction2Houlihan Lokey is pleased to present a summary of its U.S.growth equity observations and valuation insights based on real-time market data.Source:PitchBook.*As of September 30,2024.U.S

2、.VC Fundraising ActivityTepid Exit Valuation Landscape$70.7$72.8$93.7$176.2$184.2$86.3$65.17938019371,6081,5828362018201920202021202220232024*Capital Raised($B)Fund Count380IPO and M&A Market Remains MutedDistributions to Investors Nearing All-Time LowFundraising Favors Established ManagersAI Invest

3、ments Are Dominating Primary FinancingsRate Cuts Started but Will Take Time to Translate Into Valuation ImprovementsFunding and Valuation Environment in Fall 20243The exit market remains stagnant for both IPOs and large M&A deals.In Q3 2024,only 14 companies exited through IPOs,down from 30 in Q3 20

4、23.Total M&A value decreased by 33.5%in Q3 2024 compared to Q3 2023.The inventory of venture-backed companies has grown to 57,674 as of Q3 2024,a 6.3%year-over-year increase,with 28.2%of these companies considered to be later-stage,according to PitchBook.Consequently,the distribution rate to LPs is

5、nearly as low as the levels during the global financial crisis.The average quarterly distribution rate over the past decade was 16.8%,but it has fallen to around 5.0%in recent quarters.Dry powder remains high as only 23.1%of capital raised was utilized for dealmaking in the past year.As exits remain

6、 sparse,LPs and GPs have been using alternative strategies for liquidity.Some of these alternatives include secondaries,continuation vehicles,and strip sales.Fundraising continues to lag,especially for emerging managers.While the annualized venture fundraising value in 2024 is expected to surpass bo

7、th 2023 and pre-pandemic levels,the number of funds raising new capital is approaching a historical low.Notably,around 70%of the capital raised this year has been secured by large($500 million+)and established managers.Investors remain cautious with new deals,spending more time on due diligence and

8、negotiating more protective terms.Margins continue to be a key focus.However,from a valuation standpoint,venture-backed companies may receive lower valuations if they fail to strike a proper balance between growth and margins.According to PitchBook,the total deal value in 2024 is expected to be$175.

9、2 million,surpassing$173.7 million in 2020,but still significantly lower than the$352.7 million completed in 2021.The total deal value is partially elevated by investments in artificial intelligence(AI)companies.Anduril Industries,a defense tech company that integrates AI into weapons systems,secure

10、d the largest deal in Q3 2024,raising$1.5 billion in a Series F round at a$12.5 billion pre-money valuation.AI companies may not be subject to the same scrutiny from investors compared with companies in other industries as the allure of being early in the AI revolution has resulted in some investors

11、 prioritizing visionary leadership and potential market disruption over traditional metrics.For example,an AI startup successfully raised$1.0 billion at a$5.0 billion post-money valuation for its first round of financing in September 2024 despite not revealing a product or a detailed business,highli

12、ghting the current trend where some investors are scrutinizing AI-focused venture capital-backed companies less rigorously compared to other sectors.U.S.VC deal counts have trended up over the past four quarters,with 3,775 deals completed in Q3 2024.However,most of these transactions were still driv

13、en by insider rounds and bridge financings due to company liquidity needs,and thus,are not necessarily reliable valuation indications.Additionally,activity from crossover investors is on the rise.The percentage of deals involving crossover investors increased from 33.2%in Q4 2023 to 39.8%in Q3 2024,

14、per PitchBook.Crossover investors have greater flexibility than traditional VC investors to support later-stage companies.Looking ahead,market uncertainty centers around future interest rate cuts,both in timing and magnitude,and policy changes from the resulting presidential election.While lower int

15、erest rates are expected to boost company valuations,particularly for high-growth companies,the private market may take a year plus for there to be a meaningful impact.The lack of dealmaking and distributions to investors persists.According to PitchBook,the number of deals YTD through Q3 is only 45.

16、5%of the total number of deals over the same period in 2021*.Although the 50-basis-point rate cut from the Fed in September offers some optimism,a meaningful market rebound has yetto occur.Source:PitchBook.*As of September 30,2024.Funding and Valuation Environment in Fall 2024(cont.)4U.S.VC Deal Val

17、ue and CountU.S.VC Exit Value by Type($B)$146.6$153.1$173.7$352.7$240.7$161.3$131.412,72813,80213,94319,31817,95214,81305,00010,00015,00020,00025,000$0.0$100.0$200.0$300.0$400.02018201920202021202220232024*Deal Value($B)Deal Count$0$50$100$150$200$250Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q32019202

18、02021202220232024*AcquisitionPublic ListingBuyout*As of September 30,2024.10,093Overcoming Complexities on Valuations With Limited or No Information Rights5In the venture capital and growth equity financing environments,investors often face the challenge of valuing their positions without adequate a

19、ccess to portfolio company data.Limited or no information rights can make determining fair value particularly complex and introduce a greater degree of subjectivity and judgment into the valuation process.While the market adjustments and selected valuation methodologies used in limited-information v

20、aluations may appear straightforward,the real complexity lies in the art of navigating these ambiguous circumstances.When dealing with uncertain circumstances where a reporting entity is faced with limited to no information rights,partnering with an experienced,third-party valuation provider like Ho

21、ulihan Lokey becomes essential to ensure a robust and defensible valuation.Calibration as a Foundational StepIn cases of limited or no information rights,calibration remains a crucial component of the valuation process.Calibration provides a helpful starting point for valuation,even for investors wi

22、th limited to no information rights.It allows for an initial framework where adjustments can be made for subsequent valuation dates,incorporating all known or knowable information regarding a subject portfolio company.By anchoring valuations in available data at the time of investment,reporting enti

23、ties can refine future valuations as more public or market-relevant information becomes available,ensuring the process remains robust and reflective of changing market conditions.Obtaining sufficient data for subsequent valuations may be challenging in these situations,but it is important to underst

24、and and emphasize that calibration should still form the backbone of the valuation.By aligning the investors underwriting assumptions with market conditions at the time of the initial investment(or similar relevant transaction),calibration enhances the robustness and defensibility of the valuation,e

25、ven when portfolio company information is expected to be limited or unavailable going forward.Overcoming Complexities on Valuations With Limited or No Information Rights(cont.)6The Art Behind Valuation:Challenges and Considerations Post-CalibrationWhile quantitative methods based on available data f

26、orm one of the pillars of venture capital and growth equity valuations,the absence of direct information requires the use of judgment and experience.To the right are several key complexities that investors face when they lack full access to portfolio company information:Macro and Industry-Specific C

27、yclesReporting entities must carefully assess how broader economic trends and industry-specific cycles impact the subject portfolio company compared to guideline public companies(GPCs).Some of these factors include but are not limited to interest rate changes,inflation,M&A and IPO activity,GDP growt

28、h rates,employment levels,and fundraising trends.Without internal company data,it is important to consider the potential impact of these factors on a companys value.Staying Informed on Company DevelopmentsIn the absence of direct data,it is important to learn about a portfolio companys developments

29、through public sources such as online databases,news reports,and industry networks.Consistency in tracking available information can bridge gaps created by limited access.Comparable Company SelectionWith limited information,the selection of GPCs becomes ever more important in the valuation process.T

30、he right set of comparable companies may enable the valuer to incorporate the portfolio companys industry,growth potential,and risk profile(or business stage)into the valuation.Houlihan Lokeys expertise in identifying and adjusting the GPC set is key to producing a reliable valuation.Precedent Trans

31、actions and Exit ViabilityFor later-stage companies,the selection of precedent transactions or guideline transactions can be a useful element in the analysis.The right set of guideline transactions is important to the analysis if the approach is utilized.Houlihan Lokeys expertise in valuation and th

32、e knowledge from our investment banking platform can be leveraged in assessing the right transactions and in considering the viability and range of potential exit outcomes.Historical Performance AnalysisIf sufficient historical data is available,incorporating statistical methods can provide valuable

33、 insights.By analyzing how closely the subject portfolio companys historical performance tracked with comparable companies as well as its own internal budgets,one can consider regressing past returns to predict future outcomes.This layer adds a quantitative element to the valuation.Engagement With M

34、arket ParticipantsCommunicating with other market participants can provide key insights in these situations.When faced with limited information rights,Houlihan Lokey encourages clients to connect with investors,analysts,or other market professionals to gather insights on industry trends or company-s

35、pecific developments that could impact valuation.This form of networking can uncover additional data points when direct company information is not available.Documentation and SupportA rigorous process of documenting the selection of GPCs,adjustments made at each measurement date,and the rationale be

36、hind methods used is vital.Many valuation providers overlook this step,leading to defensibility issues for limited partners or to auditors.Thoughtful Use of Statistical MeasuresIt is not enough to blindly rely on changes in median or average values from GPC data when making market adjustments in sub

37、sequent valuation updates(i.e.,changes in the market capitalization or stock prices of GPCs from the date of the calibrationto the current measurement date).Houlihan Lokey carefully assesses the entire GPC set to determine if alternative statistical measures or weightings need to be applied to refle

38、ct the specific conditions of the subject company.Avoiding Common Pitfalls With DataDuring the valuation process,it is important to scrutinize external data.For example,GPC equity value changes may be misused if there was significant M&A activity or other corporate actions that were not accounted fo

39、r.Maximizing Observable Inputs(Fair Value Level III)Both IFRS 13 and ASC 820 emphasize the importance of maximizing the use of observable inputs in fair value measurements.Houlihan Lokey leverages tools like the EDGAR database and secondary market data to gather relevant information.This process req

40、uires experience and diligence,and Houlihan Lokeys resources are well-suited to this task.Overcoming Complexities on Valuations With Limited or No Information Rights(cont.)7Additional Considerations for Valuations With Limited DataBeyond the initial complexities,there are other critical factors that

41、 come into play when performing valuations with limitedor no information rights.These include:Regulatory Compliance and Risk MitigationWithout portfolio company-specific data,ensuring compliance with standards such as IFRS 13 and ASC 820 can be challenging.Houlihan Lokey assists its clients in mitig

42、ating the risk of regulatory scrutiny by adhering to rigorous valuation standards and providing well-documented,defensible valuations.Tailored MethodologiesHoulihan Lokey does not take a“one-size-fits-all”approach.Each valuation is tailored to reflect the specific nuances of the subject company,equi

43、ty capitalization,markets and industries in which the portfolio company operates,and other data.Whether using a market approach,an income approach,or a hybrid model,Houlihan Lokey adapts its methodology to meet the needs of the situation.Regular Reassessments and MonitoringValuations in dynamic mark

44、ets should be continuously reassessed.Houlihan Lokey works with its clients to implement periodic valuation reviews,ensuring that material market or company-specific developments are reflected in our valuations.This proactive approach helps maintain the relevance and accuracy of the valuation over t

45、ime,especially in volatile or rapidly changing industries.Building Investor ConfidenceOne of the greatest challenges investors face in situations with limited information is a lack of confidence in the valuation.By partnering with a respected and experienced third-party provider like Houlihan Lokey,

46、fund managers can gain confidence in the rigor and defensibility of their valuations.This,in turn,provides reassurance to limited partners,auditors,and regulatory bodies,helping to build and maintain trust in the valuation process.Proactive Engagement With Portfolio CompaniesEven when information ri

47、ghts are limited,Houlihan Lokey can help guide clients in engaging with portfolio companies more proactively.By identifying what questions to ask and what data might be available through informal channels(e.g.,industry events,board meeting minutes,investor presentations),clients can sometimes secure

48、 additional insights that enhance the valuation.Overcoming Complexities on Valuations With Limited or No Information Rights(cont.)8Additional Considerations for Valuations With Limited DataIn situations where information is sparse,the art of performing valuations becomes far more important than the

49、science behind them.Houlihan Lokeys deep experience with valuations under these difficult conditions,combined with our methodical approach,ensures that our clients receive a high-quality,defensible valuation.Our ability to navigate the intricacies of market adjustments in uncertain situations,positi

50、ons us as the ideal partner for venture capital and growth equity investors facing these hurdles.By incorporating the factors outlined above and more,Houlihan Lokey helps its clients enhance the robustness of their valuations,even in the absence of having full portfolio company information rights.We

51、 are committed to providing the discipline,expertise,and thoroughness required to navigate these challenges successfully.To the right is an example growth equity valuation framework to value assets with limited information and/or in the venture space.Please reach out to Houlihan Lokey professionals

52、to discuss how to apply these methodologies to your portfolio companies.Calibration AnalysisValuation Date AnalysesLast Round Valuation(LRV)“Backsolve”AnalysisROPMCSECalculate Implied Equity ValueSelect WeightingWeighted Total Equity Value(Implied From LRV)Cash,Debt,NonoperatingAssets/Liab.Implied E

53、nterprise Value(From LRV)Calcluate Implied MultiplesGuideline Public Company Analysis(GPC)Discounted Cash Flow Analysis(DCF)*If Projections Available Assess PortCoPerformance SinceLRVAssess MarketPerformance SinceLRVAssess PortCoPerformance SinceLRVAssess MarketPerformance SinceLRVARR/RevenueOut(Und

54、er)Performance VersusLRV ProjectionsChange in GPCsEVs,MVEs,andMultiples SinceLRVARR/RevenueOut(Under)Performance VersusLRV ProjectionsChange in GPCsEVs,MVEs,andMultiples SinceLRVSelect Adjustment(Calibrate)Off LRV MultiplesCalculate Enterprise ValueCash,Debt,NonoperatingAssets/Liab.Select WeightingC

55、oncluded Fair Value(s)Market Adjustment AnalysisSelect Market Adjustment to Implied Total EquityValue in“Backsolve Analysis”Calculate Implied Equity ValueOPMCSECalculate Implied Equity ValueOPMCSESelect WeightingConcluded Fair Value(s)ARR:Annual Recurring RevenueCSE:Common Stock EquivalentEV:Enterpr

56、ise ValueGPC:Guideline Public CompanyLRV:Last Round ValuationMVE:Market Value of EquityOPM:Option Pricing ModelROPM:Reverse Option Pricing ModelWe have deep valuation expertise in investment,NAV reporting,and fund-related transaction matters.We advise boards of directors and valuation committees as

57、they navigate audit review,regulatory challenges,and new fund formations,including valuation policy and procedures.We value large portfolios of highly structured,venture-backed“unicorn”investments for various investors across the globe.Our industry-leading Fund Opinions practice provides valuation a

58、nd fairness opinions to many financial sponsors annually in connection with cross-fund,spin-out,and other conflict-of-interest transactions.Our Capital Markets team has substantive private placement experience in structuring and raising capital with leading industry participants in growth and struct

59、ured equity.Our valuation practice has deep technical expertise and a market presence across various industries and asset classes.This is further enhanced with access to the firms dedicated industry groups,which provide an unmatched level of expertise and transaction experience to inform the valuati

60、on process.It is critical to engage advisors early when starting the IPO process.Our Accounting,Financial Reporting,and Public Equity teams advise portfolio companies on the best practices for going public,managing the IPO timeline,navigating auditor review,and crafting the equity story.Houlihan Lok

61、eys Growth Equity Expertise9Houlihan Lokey has a successful track record and robust experience in assisting its clientsincluding private equity,venture capital,hedge fund,sovereign wealth fund,and family officewith ongoing portfolio valuation work and fund-related transactions.Awards10Highlight:17th

62、 Annual Alternative Asset Valuation Symposium We are pleased to share the success of the 17th annual Alternative Asset Valuation Symposium held in New York on November 7,2024.With more than 600 attendees,the day featured compelling keynote interviews with Marc Lasry and Paul Ryan,along with highly s

63、uccessful panels and a vibrant post-event networking reception.We invite you to contact us if you have questions regarding our capabilities or would like to follow up on topics covered at the event.We look forward to hearing from you.Watch Our VideoRequest Access to the Symposium Recordings600+sympo

64、sium attendees 2enlightening keynote interviews3packed panel sessionsIan Coffman DirectorICoffmanHL.com+1 415 273 3658 Masa Noggle DirectorMasa.NoggleHL.com+1 415 273 3646 Erik Antonson Senior Vice President Erik.AntonsonHL.com+1 212 830 6186 Mustafa Azhar Senior Vice President MAzharHL.com+1 214 22

65、0 8481Michael Chiu Senior Vice President MChiuHL.com+1 415 273 3638 Rebecca Hu Senior Vice President Rebecca.HuHL.com+1 212 497 4128Sarvesh PalekarSenior Vice President Sarvesh.PalekarHL.com+91(98193)40605Chuck Pendrak Senior Vice PresidentCharles.PendrakHL.com+1 212 497 4131ContactsPlease reach out

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