Am I misunderstanding or am I the only one calling bullshit on all these firms for talking about making money where there's no liquidity event. These are mostly paper gains. Shenanigans.
Sequoia’s 2010 fund is up 5.5 times and, unlike other venture funds that are mostly sitting on paper gains
It's very hard to value equity when there are funky things (preferences, participation, etc) in the cap tables. Any given "valuation" is higher for some and lower for others, and in a hard to quantify way. And a "valuation" based on selling 3% of a company is very different than 50%. But... The values are non-zero. And the company needs to provide something that's better than no information to investors in the interim.
It's analogous to GAAP accounting. GAAP accrual based earnings are good, but until you see the cash, it's just a best guess.
However, it's still far from a done deal as each transaction has its own minuscule details, and in commercial property, e.g., one party might value such things as location, quantity/quality of parking spots, proximity to traffic flows, quality of neighbors, recently incurred maintenance, etc. differently from the other.
With that said, a 409a valuation firm (or potential acquirer) is likely to look at the peers, current and historic ones, to at least start at some ballpark figure.
the only way to get your liquidity ponzi scheme funds frozen by regulators is to:
a) lose money
b) not know any regulators
If you got a) and b) covered, then you can start as many funds as you want, issue or rollover as many bonds as you want, dilute as much equity as you want
keep the gravy train rolling
Their LPs are likely smart enough to realize this.