A debate has resurfaced in the venture capital industry over the value of regularly updating portfolio startups’ valuations to better reflect current conditions—in particular, how aggressively to lower the value of the stakes.
Many venture capitalists argue that markdowns are arbitrary and therefore meaningless, and that a VC firm’s limited partners won’t really know the value of a stake until it’s sold or the startup goes public. But some LPs want these updated valuations, even if they only reflect paper losses and gains, because they provide a needed window into a venture fund’s performance.
Pressure from LPs is poised to intensify while funding for VC firms remains in the pits. More funds are likely to slash valuations of their startup stakes, particularly those inked during the 2021 heyday.