Lincoln International’s Managing Directors discuss the evolving valuation landscape, the importance of valuation standards and key changes valuers need to look out for in the latest IPEV guidelines.

Nick: The IPEV guidelines were initially published in 2005 to provide a globally consistent, high-quality and principles-based framework for valuing unlisted assets held by private capital investors. While the initial coverage was on private equity and venture capital, with the changes in financial reporting requirements over the years, the guidelines have been made relevant for other forms of private capital investments too, including private credit and secondaries.

These guidelines have been considered a gold standard in private capital valuations for over two decades. The guidelines are focused on fair value measurements, compliant with both International Financial Reporting Standards (IFRS) and United States Generally Accepted Accounting Principles (U.S. GAAP).

Srividya: As Nick mentioned, the guidelines have been in existence since 2005. They get reviewed and updated every three years to reflect changes to fair value standards as well as developments in business, investments and valuation practices. The predecessor to the guidelines was the European Venture Capital Association (EVCA) valuation guidelines, which was more rule-based. The IPEV guidelines were introduced in order to have a principles-based approach that recognizes the need to exercise informed judgement, rather than rigid rules. It provides flexibility in techniques and consistency with market practices.

The guidelines have taken cognizance of the changes to financial reporting standards as well as market dynamics. For example, the guidelines moved away from blindly treating “cost” as “fair value” in their 2009 version and explicitly mentioned that there is no “safe harbor” period where the “price of recent investments (PRI)” can be treated as fair value, while the previous practice was to use PRI for a year after the investment date as fair value. This was further reiterated in the 2012 version, where it was mentioned that the valuer should assess at each measurement date whether changes or subsequent events would imply a change to the investment’s fair value. This concept has evolved over the years with the latest version as of December 2025 explicitly stating that “PRI is not a default.”

Similarly, with the advent of IFRS 9 and other developments in financial reporting, the 2018 version of the guidelines started rephrasing the asset class from “private equity” to “private capital” in a broad sense to include a variety of privately held investments, including credit and infrastructure. The 2022 version also include certain considerations for environmental, social and governance (ESG) factors as there was a significant impetus on ESG from the investor and the regulatory communities.

Nick: There are no fundamental changes between the 2022 and 2025 versions of the guidelines; however, there have been several explanatory changes and minor edits to provide more clarity.

For example, the guidance further strengthens the “known and knowable” concept with the critical assumption that subsequent events or events after the measurement date should not be considered in the fair value context. There is also additional guidance on “calibration,” valuing debt instruments and especially convertibles, valuing complex capital structures particularly for early-stage companies, how to consider transaction costs and more. There is more guidance provided for secondary transactions and how to consider discounts or premia, particularly when there is an opaque market for such assets. New information on ESG and sustainability impacts provides further clarity to the guidance introduced in 2022, given a lot has happened in this space in the last few years. New guidance has been provided on artificial intelligence (AI) given the rapid strides made in this space. It refers to the International Valuation Standards (IVS) instructions to ensure the use of human professional judgement and skepticism while using AI tools and outlines that AI is not a replacement for human professional judgement.

With the various changes we see in the market around democratization of private investments, public market volatility and complex investment structures in the private market, there has been additional guidance provided on valuing with limited information, more frequent valuations, venture debt & SAFE instruments as well as carried interest.

Srividya: Calibration is one of the most powerful concepts explained by the guidelines. It is also mandated by financial reporting standards. For example, IFRS 13 explains calibration as the crucial process of adjusting valuation techniques (especially those using unobservable inputs) to ensure they reflect current, observable market conditions and market participant assumptions, where the initial transaction price equals fair value in an orderly transaction. Put simply, the price of the initial investment is deemed fair value on the investment date in an orderly transaction. Calibration validates that the valuation techniques using contemporaneous market inputs will generate fair value at inception and, therefore, that the valuation techniques using updated market inputs as of each subsequent measurement date will generate fair value at each such date.

The 2025 guidelines states that calibration is most relevant when the measurement date is close to the transaction date. However, even if a substantial period has passed, calibration can be used to ensure the consistency of the unobservable assumptions with the transaction price as of the transaction date and that the evolution of those assumptions over time is reasonable in light of the facts and circumstances at each measurement date. If there have been any additional orderly transactions in the portfolio company’s instruments subsequent to the initial transaction, calibrating to the more recent transactions, if considered orderly, will typically be more relevant than calibrating to the original investment. In addition, calibration can be used to ensure that the movement in the valuation between measurement dates is reasonable, even in the absence of a recent transaction.

Nick: It is true that complex instruments are becoming more common, especially as many early-stage companies are financed by a combination of different classes of equity, providing unique rights, privileges and preferences. Many come with options and warrants. We are also seeing an increased advent of venture debt and SAFE notes.

IPEV 2025 guidelines talks about several methods used in such cases including scenario-based methods, option pricing and hybrid methods. It talks about several non-economic rights which may not be explicitly considered in any of the commonly used methods for valuing equity interests. However, these rights would be considered in assessing market participant expectations regarding expected exit scenarios and timing.

The guidance also reiterates that some methods for valuing equity interest may appear more theoretical or more complex, but a more complex or detailed method would not necessarily be superior to a simpler method that captures market participant assumptions. This aspect is explained in detail in our Lincoln International thought piece on Growth & Venture Equity Valuations: OPM and CSE Considerations. We have explained the difference between complex models and simpler assumptions to infer how a balance approach is necessary, depending on specific situations and considerations.

Srividya: Just like accounting standards, valuation standards and guidelines also aim to enhance transparency and comparability of valuation across different funds and geographies, which boosts investor confidence. Whether it is IPEV, IVS or other global standards, the standard setting bodies are constantly reviewing changes to other standards as well as global developments. For example, the IPEV 2025 version has referred to both IVS and AICPA guidance. Similarly, IVSC, in collaboration with IOSCO, IASB and others, is currently working establishing a dedicated Financial Reporting Project Group to advise IVSC technical boards on development of a dedicated section within IVS to support financial reporting valuations.

The rate of adoption is currently highly varied across the world, with many geographies and valuers fully adhering to the requirements of the standards and guidelines compared to a few others being completely unaware of them. In certain cases, investors or valuers confirm adoption but continue using outdated versions which are no longer relevant. Hence, it is important for the stakeholder community, including standard setters, regulators, private capital associations, limited partner associations, Valuation Professional Organizations (VPOs) and investors forums, to create more awareness and knowledge about the standard guidelines and global best practices to ensure stronger governance, transparency, consistency and comparability.