Author Archive
What is a Qualified Appraiser? Part Two
In the last blog post, we discussed the notion of a qualified appraisal that was introduced by the Pension Protection Act of 2006. Such an appraisal needs to be prepared by a qualified appraiser.
In this post, we will discuss the definition of a qualified appraiser. (more…)
What is a Qualified Appraisal? Part One
Taxpayers may deduct the fair market value (as determined by a qualified appraisal) of property that they contribute to charity from their taxable income. The Pension Protection Act of 2006 added the notion of a qualified appraisal to the tax code. A qualified appraisal made by a qualified appraiser is generally necessary to support the value of noncash charitable contributions of $5,000 or more. (more…)
Insider Trading – Are VCs Dealing Themselves Inside Rounds?
Brian Broughman and Jess Fried put forth a study recently on insider rounds in venture-backed companies: Do VCs Use Inside Rounds to Dilute Founders? Some Evidence from Silicon Valley.
As the name implies, inside rounds are rounds of investment by existing investors, versus outside rounds that are led by new investors.
In our valuation practice, we are often confronted with clients having gone through inside rounds, and we need to make a determination if the pricing of those investments provides an indication of value of the equity of a company (regardless of which class of shares; but usually invested as preferred equity). Each case is different, but often such an investment is not a good indicator of value as it lacks arm’s length characteristics.
Although Broughman and Fried only cover a very limited geography (Silicon Valley), a very limited time frame (companies that were sold in 2003 and 2004), and had very specific exit circumstances (M&A), it provides a welcome quantitative analysis of such inside rounds. (more…)
The Latest IPO Bumps
This is my second blog posting on IPO Bumps of VC backed companies. The IPO Bump refers to the difference between a stock option’s exercise price and the price of the company’s shares at the IPO. There has been some speculation on whether 409A rules (among other factors) are leading to the end of the IPO Bump. However, a sampling of recent tech IPOs indicates IPO Bumps are alive and well, although the magnitudes of the Bumps can differ significantly among IPO issuers. (more…)
Recent IPOs and the IPO Bump
The “IPO Bump” refers to the difference in the exercise price of stock option grants and the offering price at the IPO. The theory is that employees are sometimes granted stock options with strike prices that are at a discount relative to the IPO price (especially in the period immediately preceding the IPO). There has been some speculation on whether 409A rules (among other factors) are leading to the end of the IPO Bump.
IRC 409A requires the company to estimate the fair market value of its stock at the time of an option grant. As a venture capital backed company grows successfully and starts aiming for an IPO exit, the fair market value of the stock should grow as well, in theory. If the company had perfect foresight, the discount relative to the IPO price should decrease the closer the company gets to an IPO. (more…)
When Black Scholes Falls Short
Every now and then, the SEC lets the world know their interpretation of generally accepted accounting principles. More often than not, this happens in speeches by SEC employees, and the resulting guidance is referred to as “Speech-GAAP”. (more…)
Bubble Watch – Part 3: Cloud Computing
In our first two installments of bubble watch, we looked at cleantech and social gaming. Of course, our trilogy wouldn’t be complete without also considering cloud computing. (more…)
Bubble Watch – Part 2: Social Gaming
In my first bubble watch installment, I took a look at the cleantech industry. To continue our search for the latest bubble, we direct our attention towards the area of social gaming:
A search for “social gaming bubble” on Google returns a whopping 266,000 results. Move over, cleantech! The search in the news section shows an increase from 22 hits in 2009 to 87 in 2010. Getting closer. (more…)
Bubble Watch – Part 1: Cleantech
The end of the old year and the beginning of the new year always lends itself to a retrospective on the past and speculations on the future. And what could be more enticing to speculate on than the latest financial bubbles; a worthwhile topic since 1637, when some single tulip bulbs in Holland sold for more than 10 times the annual income of a skilled craftsman.
So here goes our list of contenders for 2011 bubbles: (more…)
Super Angel versus Venture Man
There has been much noise recently about who’s the better investor: the newly minted Super Angels, or the traditional venture capitalists of Sand Hill Road.
The debate has been carried out rather openly, and the borders of straight-talk, self-promotion, and honest reflection have become somewhat blurred.
The basic question is whether it’s better to take a limited amount of money from Super Angels – say between $100 thousand and $1.0 million, or shoot for the moon and go to Sand Hill Road where a self-respecting Series A starts with $5.0 million. Super Angels are loosely defined as business angels with more money making a lot more investments. (more…)
