1. Closing Reception
Breakfast Sponsor
CFO/GC Deep Dive

2. AICPA PE-VC Task Force Update
Tim Curt, Warburg Pincus (NVCA Board Member)
David Larsen, Duff & Phelps

3. Task Force Mission Task Force objectives are —
Harmonize the diverse views of industry participants, auditors and valuation specialists
Produce a more user friendly guide with examples that can be used to reason through real situations faced by valuation specialists and auditors
Working title:
Determining Fair Value of Portfolio Company Investments of Venture Capital and Private Equity Firms and other Investment Companies

4. Why a New Accounting & Valuation Guide?
Concerns
Diversity in practice contributes to fair value measurements that are not consistent or comparable between investment companies year-over-year
Increased PCAOB and SEC scrutiny have put pressure on the industry and the audit firms to provide better support for valuation conclusions
Industry Assumptions vs. U.S. GAAP/IFRS Fair Value
Investors typically are most focused on the ultimate exit for an investment; however, fair value focuses on market participant assumptions in an assumed transaction on the measurement date
Conceptually challenging to reconcile market participant assumptions and investment objectives

5. Current Resources
Cheap Stock Guide (June 2013), focused on equity securities issued as compensation
IPEV Valuation Guidelines (December 2012), focused on later stage controlling investments; deferred discussion of enterprise-value allocations
AICPA Audit and Accounting Guide: Investment Companies, which is focused primarily on accounting and auditing
AICPA Investment Companies TPAs (TIS 6910)
PEIGG – U.S. Private Equity Valuation Guidelines

6. Task Force Members Co-chairs Valuation Specialists Auditors
Mark Hayden (Deloitte)
Sean McKee (KPMG)
Valuation Specialists
Travis Chamberlain (CLA)
Massimo Messina (GT)
Amanda Miller (EY)
Ray Rath (Globalview)
Auditors
Dale Thompson (BDO)
Belanne Ungarelli (PwC)
Industry Participants
Scott Burger (KPCB)
Timothy Curt (Warburg)
Dan Iamiceli (Flag Capital)
Quintin Kevin (Adams Street)
David Larsen (IPEV, Duff & Phelps)

7. Projected Time Line 1. Approve Outline 2. Establish Framework
3. Drafting
4. FinREC review/appr.
5. Issue proposal
Mar 2013
Mar 2013 — Mar 2014
Mar 2014 — Apr 2016
Spring 2016
Summer 2016
Outline
Developed consensus on topics to be covered in the Guide
Received FinREC approval
Strategy
Subgroups tackle specific topics; full TF reviews
Work through examples to build consensus
Initial topics addressed:
Unit of account and the assumed transaction
Market participant assumptions
Coordination
Periodic meetings
Frequent calls
Subgroups tackle controversial topics
AICPA staff and TF members draft the guide
Objective
FinREC’s mission is to determine AICPA’s technical policies regarding financial reporting standards and to improve financial reporting
FinREC reviews and approves all financial reporting aids, guides, etc. and proposals thereof
Comments
All stakeholders invited to comment
Task Force analyzes all comments and modifies the Guide as necessary
Revised guide is reviewed and approved by FinREC for final issuance

8. Outline 0. Introduction Fair value and relevant concepts
Purpose & scope – focused on Portfolio Company Investments of Private Equity, Venture Capital and other Investment Companies
Existing body of knowledge
Fair value and relevant concepts
U.S. GAAP and other sources
Best practices
Overview of the Industry and its Investment Strategies
Market participant assumptions
Industry participants
How investments are evaluated
Holding period and exit strategies
Pricing, risk, illiquidity

9. Outline (continued)
Determining the Unit of Account and the Assumed Transaction for Measuring the Fair Value of Investments
ASC 946 definition
ASC 820 “economic best interest” and “maximizing value” concepts
Level of control considerations
Examples
100% of equity held within a single fund (single reporting unit)
45% of equity held in each of two funds managed by the same GP
Club Deal, 30% of equity held in each of three funds with different GPs
Entity with large unused NOLs
Debt and equity held within a single fund under the same GP
Debt and equity held in different funds under the same GP
Equity or Debt Investment with Options/Warrants
Multiple Investments in different classes of Equity (Series A, B, C, etc.)
Private Investment in Public Equity (PIPE)

10. Outline (continued) Overview of valuation approaches and methods
Market, income, and asset approaches
Valuations of equity and debt in simple capital structures
Typical pricing methods and calibration
Enterprise value as a starting point
Updating fair value measurement in the absence of recent transactions
Common pitfalls
Valuations of equity and debt in complex capital structures
Typical pricing for complex investments
Impact of differing rights and privileges
Allocating equity value
Control and marketability

11. Outline (continued) Calibration Transaction Costs
Impact at initial recognition and when exit is imminent
Accounting for transaction costs
Examples
Special Situations
Options, warrants, contingent consideration, PIPEs
Pre-revenue companies
Distressed situations
Rights and privileges not enforced
Appendices
Case studies – Investment Summaries and Valuation Examples
Checklists

12. Determining the Unit of Account and the Assumed Transaction for Measuring the Fair Value of Investments
ASC 820 “assumed transaction” for measuring fair value is an exit from the investment on the measurement date
But transactions at intermediate dates rarely happen!
Establish a framework that makes sense for the industry
How does the requirement under FASB ASC 820 to measure fair value based on an assumed sale or transfer of the Fund’s investment on the measurement date consider market participant assumptions regarding the way that value is expected to be realized from the investment?
How does the fair value measurement under FASB ASC 820 take into account the strategy that market participants would use to maximize value from the investment, considering their economic best interest?
Status
TF established principles and applied them to examples
Draft chapter submitted to FinREC for review

13. Market Participant Assumptions
Set context for measuring fair value – frame conversations considering the industry perspective:
What characteristics do market participants consider when evaluating portfolio company investments?
How do market participants establish their required rate of return, considering the risks and illiquidity of the investment?
How do market participants consider the expected holding period and the possible ultimate exit strategies for the investment?
What information do market participants require when evaluating an investment? How do investors make decisions when less than perfect information is available?
Status
Several case studies based on real-world examples developed to ensure coverage of many different industries, types of investments, investment and exit strategies – follow each investment from issuance to exit
Primary topic of recent in-person TF meeting (May 2014)

14. Summary
AICPA PE/VC Task Force mission is to promote consistency and build consensus among stakeholders from industry, audit and valuation
Leverage existing guidance to the extent possible, but recognize the gaps
Provide industry participants, auditors and valuations specialists with a one‑stop resource
Looking to issue a working draft for comments in 2016

15. Networking Break Until 10:45 a.m.
CFO/GC Deep Dive

16. Closing Reception Sponsored by SRS|Acquiom
CFO/GC Deep Dive