For realized or partially realized outcomes, such as acquisitions, IPOs, dividends, or businesses shuttering, FundersClub marks current value estimates at the total consideration amount (or $0 in the event of a full default). These total consideration amounts may include capital held in escrow (or held in other ways), the release of which is conditional based on terms of the acquirer; this is capital that may ultimately not be received in full or not received at all (expected proceeds can be further adjusted as actual payments come in).
For all other situations (investments which are in an “Active” state), we use the following methodology below to calculate the current value estimates. These numbers are our own estimates of current value. These numbers are not provided or verified by the companies and there is no third-party pricing service for any of these positions.
Equity holdings: Equity positions that have NOT had new valuation events such as follow-on rounds of financing subsequent to the FundersClub investment are shown in the Investment Report as valued based on cost without any adjustment (this does not include subjective markdowns, discussed below). Update: starting with valuation estimates for Q4 2020 (but not retroactively), new valuation events used in value estimates may include (at the discretion of FundersClub) successfully completed tender offers and/or secondary transactions having a minimum transaction size of $1M or greater.
This means that even if the company has meaningfully progressed from a business and/or operational perspective, we do not adjust for the potential increase in value in our estimates until the point of a new valuation event (typically via pricing by an institutional investor).
Increases in equity values are based on the values implied by subsequent equity investments or transactions in the companies, but the fund may not be able to realize those values. In the event of subsequent equity investments, we increase the carrying value to match the post-money valuation, less the impact of any known dilutive effects, such as employee option pools, convertible notes, etc. plus the impact of any anti-dilutive effects such as an active valuation cap or discount on a convertible note. These holdings are shown in the Investment Report without any adjustment for subjective markdowns (discussed below).
For example: If we initially purchased stock in Company A at $10M equity valuation, and then Company A receives a follow-on round at a $50M post-money valuation, our investment would be carried at 5x the valuation of our original investment less any dilutive effects plus any conversion discount or valuation cap benefits.
Convertible note (or similar) holdings: Increases for convertible note positions are based on accrued interest, which the company may or may not be able to pay. If a company receives follow-on funding through another convertible note offering, we do not increase the valuation of the company, even if the valuation cap of the subsequent convertible note is above the point at which we invested. These holdings are shown in the Investment Report without any adjustment for subjective markdowns (discussed below).
For example: If we invested in Company A at a $5M cap, and then another note was issued for Company A at a $10M cap, we did not mark our investment up in carrying valuation. If the convertible note positions later convert through a priced equity round, then we would adjust the current value estimate to reflect the values implied by the subsequent equity investment.
NOTE: This methodology also applies to “SAFE” investments or other convertible instruments.
- Valuation figures are unrealized (i.e., inherently non-concrete) until the return of capital like a secondary IPO or acquisition, or a business shuttering – so our current estimates of value may not result in actual gains or losses or returns on investment.
- For marking our positions, we do NOT use Financial Accounting Standards Board (FASB) Statement 157 fair market value reporting principles nor do we use fair market value methodologies from Section 409(a) of the Internal Revenue Code. This type of fair market value would typically entail valuing our private investments off of public comparable companies, past transaction comparables (read: other acquisitions), and/or the discounted cash flow (“DCF”) analysis, among other valuation approaches.
- For investment holdings in an unrealized or pending state, FundersClub may also subjectively mark down its investments. Markdowns are not shown on a company-by-company basis in the Investment Report. Markdowns are listed in aggregate separately in your Summary Table. Learn more about markdowns.
- For investment holdings in an Active state which experienced a return of capital such as a dividend payment or tax credit payment, the Net Value will include the cash value of the return of capital received.
The return outcomes above are highly uncertain and may, in the end, have no bearing on the realized return profile of the FundersClub portfolio. Additionally, our past performance is not indicative of future returns, so we can’t provide assurances that comparable returns (including those represented by applicable benchmark data) individually or in the aggregate will be achieved by any future FundersClub fund.