IPEV Guideline Updates – Where do we see the biggest impact?

The updated IPEV valuation guidelines were published on 11 December 2025 but are considered in effect for quarterly reporting periods beginning on or after 1 April 2026. Early adoption was encouraged but for many firms their 30 June 2026 quarterly reporting will be the first under the new guidelines.

On first look, there were only very limited changes to the guidelines themselves, so managers could be forgiven for dismissing the revisions as insignificant. On closer review, there are several changes to the explanatory text which require consideration and this article focusses on those we see having the biggest impact on Venture Capital (VC) valuations and valuation processes. It is not intended to be exhaustive.

1. CALIBRATION AND VALUATIONS OF EARLY-STAGE INVESTMENTS

Many early-stage investments are valued using the price of initial investment which is subsequently calibrated using a simplified scenario analysis, or a milestone approach. The revised explanatory text explains that calibration is most relevant when the measurement date is close to the transaction date – but it accepts that calibration can be used to ensure movement between measurement dates is reasonable in the absence of a recent transaction.

For early-stage investments, which are often pre-revenue, the explanatory text includes a list of qualitative factors which should be considered in the milestone analysis, including cash burn and performance against expectations. This includes Managers incorporating company-specific factors into their valuation. In many cases the milestone approach results in a fair value equivalent to cost or adjusted by a judgemental percentage. In addition to this, valuers need to consider the requirement to calibrate for changes in value implied by the overall market and macro factors.

2. LIQUIDATION PREFERENCES

Many VC investments involve multiple share classes (pre-seed, seed, series A, series B etc), with later rounds typically benefitting from liquidation preference over earlier investors.

The revised explanatory text provides helpful clarification in this area. It acknowledges that, in certain circumstances, it may be appropriate to allocate equity value pro rata on an as-converted or common stock equivalent basis, where market participants would assume that liquidation preferences are unlikely to affect the ultimate economic outcome.

In our experience, this clarification largely reflects what we’ve seen in practice for a long time. Many VCs have historically defaulted to a single share price approach. However, it is important to remember this is a simplification and not a default. One common scenario where a single share price approach is unlikely to be appropriate is following a downwards revaluation where the equity value is not sufficient to return capital invested. in this circumstance, earlier stage investors are likely to bear a disproportionate share of the downside due to their subordinated position in the preference stack.

The guidance also confirms that at the date of a transaction, the impact of liquidation preferences is included in the price paid, meaning from a calibration perspective, a 2x liquidation preference is imbedded in the price paid and the fair value would generally be the price paid, not increased to 2x on day one.

3. VENTURE DEBT AND CONVERTIBLES

One of the new sections of explanatory text covers venture debt, principally focussing on Simple Agreements for Future Equity (SAFE’s) and Convertible Loan Notes (CLNs).

Historically used to bridge equity funding rounds, these instruments have become an increasingly common method of funding for early-stage businesses, with successive SAFE rounds now regularly observed in practice. This can create valuation challenges where the most recent priced equity round is several years old, but the business remains early stage and does not yet have sustained revenue that would support the application of a market-based valuation method.

A robustly negotiated valuation cap within a SAFE or CLN can provide a useful input into the valuation process. However, its usefulness will depend on the extent to which a full pricing exercise has been undertaken. In assessing whether a valuation cap represents an appropriate input, several factors should be considered, including:

• The quantum of funding raised via the SAFE or CLN
• The ratio of funding raised relative to the valuation cap
• The extent and nature of third-party investment

Valuers will also need to:

• Consider potential exit scenarios
• Calibrate the valuation to reflect market or business-specific changes since the SAFE or CLN was agreed
• Carefully assess the dilutive impact of the securities to be issued under the agreement

4. LIMITED INFORMATION

It is not uncommon for a VC investor to face restrictions on information rights, for example following dilution below a certain threshold, or where consideration on exit includes shares in a third-party acquirer. In these circumstances, the requirement to determine fair value is unchanged.

The revised explanatory text suggests that where limited or no information is available, a market participant may require an increased rate of return to compensate for the additional uncertainty arising from that lack of information. Clients should therefore consider whether an information risk adjustment is required. This assessment should be distinct from the broader requirement to calibrate for market movements and company-specific performance to the extent known and knowable.

The 2025 version provides clearer guidance that limited information rights do not remove the need to determine Fair Value

5. ARTIFICIAL INTELLIGENCE

The guidelines also discuss Artificial Intelligence (AI) for the first time. The IPEV Board appear cautious and note that AI is not a replacement for human professional judgement and scepticism, but they recognise that it can augment the valuation process.

In practice, AI is already being used to source and process valuation information, and this is only likely to increase.

We’re already seeing AI being applied in several ways by our clients:

• For market-based valuations – identifying comparable businesses or relevant transaction data
• For smaller holdings with limited information rights – supporting more efficient searches for valuation-relevant information and recent company developments
• For complex capital waterfalls – providing an initial view on how waterfall provisions may operate

These uses are consistent with the intent of the guidance, as tools to support and enhance a human-led valuation process, rather than replace it.

Conclusion

Whilst the revisions do not change the principles of valuation, the enhanced explanatory guidance provides clarity on several areas particularly relevant to venture investing and should be carefully considered.

Would you like to know more?

If you would like to discuss any of the above and how it impacts you, please speak to Simon Lewis or Andrew Snook, or your usual Blick Rothenberg contact.