How is private company stock valued for fair value reporting?

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AcadiFi · Accepted Answer

Private company stock valuation follows three approaches, often blended: **Market approach** — apply multiples (EV/Revenue, EV/EBITDA, P/E) from comparable public companies to subject company financials. Example: Kairos Biogenics private stake valued using median EV/Revenue 6.2× from comparable public biotechs (Vanta Therapeutics at 6.8×, Helix Orbital Systems at 5.4×, etc.). **Income approach (DCF)** — project free cash flows 5-10 years, discount at WACC appropriate for private company (typically 300-800bps higher than public comparables to account for size and illiquidity), add terminal value. **Cost approach** — net asset value, used primarily for early-stage companies with no revenue and limited intangibles. **Calibration** — if the position was acquired in a recent arm's-length financing round, calibrate the model to the round price, then adjust for company-specific developments since the round. Worked example: Pine Hollow Ventures invested $12M in Series C of Nebula Growth Capital's portfolio company Stratus Labs at $45/share in Jan 2025. At 12/31/2025 measurement date, Stratus closed a product deal worth 15% of projected revenue. Pine Hollow runs: (a) market approach using updated SaaS comparables → $52/share, (b) income approach with revised growth → $56/share, (c) calibration adjustment from Series C price reflecting 18% value increase → $53/share. Weighted average = $53.50/share. **Hierarchy**: Always Level 3 because significant unobservable inputs (private company projections, WACC, comparable multiple selection) drive the measurement. ```mermaid graph TD A[Private Stock
Valuation] --> B[Market Approach
Comparables] A --> C[Income Approach
DCF] A --> D[Calibration
Recent Round] B --> E[Weighted
Fair Value] C --> E D --> E E --> F[Level 3
Classification] ``` **Required Level 3 disclosures**: quantitative ranges for WACC, growth rates, terminal multiples plus sensitivity analysis.

How is private company stock valued for fair value reporting?

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