PE funds: valuation of non-listed equity investments

In order to guide the professional valuation of non-listed equity investments of privately offered funds, the Asset Management Association of China (AMAC) issued a Guideline for Valuation of Non-listed Equity Investment of Privately Offered Funds (Trial Implementation) on 30 March 2018. The guideline proposes five specific valuation methods, applicable scenarios and the guideline for investment in non-listed enterprises using privately offered funds.

From the perspective of equity investment, the enterprise life cycle can be divided into the initial stage (angel investment stage), growth stage (VC investment stage), rapid/stable development stage (PE investment stage), expansion stage (pre-IPO stage) and mature stage (IPO listing stage). Different valuation methods are used for the enterprises in different developmental stages.

Initial stage/growth stage: refer to the latest financing price method. This refers to the equity valuation by reference to the latest financing price of the invested enterprise, and it is applicable to invested enterprises that are in the initial stage and growth stage, with no stable income, but with frequent financing activities. When adopting this method, judging the fairness of the latest financing price is required, for example, whether the latest transaction is an inconsistent transaction, whether the enterprise is forced to sell equity or it is a rescue investment for the invested enterprise in crisis. The longer the valuation date (measured from the time of financing completion), the weaker the reference to the significance of the latest financing price will be.

Xiao Weixiao is an associate and Wang Yubi is a paralegal at Boss & Young