Enter Calibration: What Better Funds Are Doing Differently

More sophisticated funds are moving toward a calibration-driven approach, aligned with guidance from the American Institute of Certified Public Accountants and broader industry practice.

At its core, calibration means:

• Start with the transaction price (cost)
• Build a model around it
• And then update that model as reality changes

Instead of asking, “Can we still use cost?” the question becomes:
“If we were pricing this investment today, what would a market participant pay?”

That shift in mindset makes a big difference.

When Cost (and Even the Last Round) Stops Making Sense

In practice, there are a few common situations where sticking to cost—or even the last round—starts to break down:

Time Has Passed Without Any New Signal
If it’s been 9–12 months (or more) without a new round or secondary transaction, it’s hard to argue nothing has changed.

Markets Have Moved
Public comps are down. Funding is tighter. Discount rates are up.
Even strong companies don’t exist in isolation.

The Company Isn’t Tracking to Plan
Missed targets, higher burn, slower growth—these need to show up somewhere in the valuation.

The Round Itself Was Structured
Liquidation preferences, ratchets, participation rights—headline valuation doesn’t always reflect real economics, especially for common equity.

Auditors are increasingly zeroing in on these areas—not as edge cases, but as expected considerations.

What Auditors Are Really Looking For

It’s less about which model you use—and more about how you use it.

Across audits, there’s a growing emphasis on:

• Consistency – Is there a repeatable framework?
• Evidence – Are assumptions backed by data?
• Judgment (with support) – Can you explain why something changed—or didn’t?
• Documentation – Is there a clear trail from inputs to conclusion?

Funds that can walk through this clearly tend to have smoother audit processes. Those that rely on “nothing has changed” are finding that argument harder to sustain.