FVC2043. The OPM Backsolve Method in Common Stock Valuation: A Fair Value Update

This session presents step-by-step practical examples of how to set up an Option Pricing backsolve model with calibration for the valuation of common stock in a complex capital structure under the most recent guidance in the AICPA Guide to the Valuation of Portfolio Investments of Venture Capital and Private Equity Funds and Other Investment Companies. We address common challenges such as the modeling of preferred stock dividend and participation rights, the estimate of volatility and term to exit. We provide guidance to evaluate the quality of inputs. We discuss differences in OPM implementation in the valuation of common stock as a PE/VC fund investment and as stock-based compensation.

Learning Objectives:

• Illustrate how to set up an option pricing backsolve model with calibration consistently with the AICPA Guide to the Valuation of Portfolio Investments of Venture Capital and Private Equity Funds and Other Investment Companies.
• Identify common pitfalls in input data
• Determine how preferred dividends and participation rights affect the value of common stock in a waterfall valuation
• Recognize when the model needs adjustment to better reflect relative seniority rights in a complex capital structure.