Finance

Quarterly Valuation Packs (QVPs) in PE/VC: What They Include & Why They Matter

Finance Guy

Finance Guy

— 2 min read

For private equity (PE) and venture capital (VC) funds, the Quarterly Valuation Pack (QVP) is the backbone of portfolio management, investor relations, and regulatory compliance.

Most importantly, it fulfills the fiduciary duty to accurately report the fair value of portfolio companies and the fund’s Net Asset Value (NAV).

What Is a Quarterly Valuation Pack (QVP)?

A QVP is the due diligence package that supports a fund’s internal assessment of a portfolio company’s Fair Market Value (FMV). This valuation process, often called mark to market (MTM), is critical for:

  • Calculating overall fund NAV
  • Reporting investment performance to Limited Partners (LPs)
  • Guiding capital allocation and exit decisions

Key Components of a PE/VC Fund QVP

QVPs are structured to justify reported valuations under GAAP and IFRS standards (Fair Value Measurement).

The core sections typically include:

1. Financial and Operational Summary

Prepared by the portfolio company and vetted by the fund’s investment team, this section includes:

  • Financial Statements: Income Statement, Balance Sheet, and Cash Flow Statement vs. budget or thesis
  • Fund-Specific Metrics: EBITDA/Cash Flow (PE) or ARR, LTV/CAC (VC)
  • Covenant Compliance: Debt ratio monitoring in LBOs
  • Strategic Initiatives: Updates on M&A integration, cost savings, or product rollouts

2. Valuation Methodology & Calculation

The most critical section, providing evidence for FMV:

  • Policy Adherence: Confirmation of compliance with valuation policy
  • Methods Used:
    • Trading Comps Approach: Multiples of comparable public companies
    • Transaction Comps Approach: Multiples from recent M&A deals
    • Income Approach (DCF): Discounted future cash flows (often used for growth-stage companies)
  • Adjustments:
    • Discount for lack of liquidity (DLOL)
    • Control/minority discounts
    • Impact of new financing rounds (Last Price Method for VC)

3. Investment Thesis & Risk Assessment

This section ties valuation to the original investment rationale and identifies risks:

  • Thesis Check: Is the company delivering on the investment case?
  • Qualitative Risks: Leadership changes, regulatory issues, or tech disruption
  • Exit Planning: Updated view of potential sale multiples, IPO timing, or secondary exits

4. Waterfall Analysis (Capital Structure Impact)

Ensures correct allocation of value across share classes:

  • Scenario Analysis: Impact on payouts for preferred vs. common equity
  • Liquidation Preferences: Anti-dilution and preference rights implications

Why QVPs Are Pivotal for Investment Funds

QVPs serve three main purposes for PE/VC funds:

1. LP Reporting & Fundraising (Investor Side)

  • Performance Metrics: IRR and MOIC calculation
  • Capital Flows: Informs capital calls and distributions
  • Fundraising: Demonstrates track record and credibility to future LPs

2. Portfolio Management & Value Creation (Manager Side)

  • Capital Allocation: Identify high- vs. low-performing investments
  • Hold/Sell Decisions: Detect underperformance or exit opportunities
  • Dry Powder Management: Align available capital with portfolio strategy

3. Regulatory & Audit Compliance (Fiduciary Duty)

  • Audit Trail: Evidence for fund NAV validation during audits
  • Carried Interest (Carry): Determines fund manager compensation - misreporting can trigger clawbacks

FAQs About Quarterly Valuation Packs

Q: What is a Quarterly Valuation Pack (QVP)?
A: A QVP is a structured report used by PE/VC funds to assess and document the fair value of portfolio companies each quarter.

Q: Why are QVPs important for private equity and venture capital?
A: They ensure accurate NAV reporting, guide investment decisions, support fundraising, and provide an audit trail for regulators.

Q: How do QVPs affect LP reporting?
A: They form the basis for key performance metrics like IRR and MOIC, which LPs use to evaluate fund performance.

Q: Which valuation methods are most common?
A: Comparable Company Analysis, Precedent Transactions, and Discounted Cash Flow (DCF) are the most widely applied approaches.

Final Thoughts

For PE/VC funds, the Quarterly Valuation Pack is more than a compliance exercise - it’s the central control document that connects investor reporting, portfolio strategy, and fiduciary accountability.

By standardizing valuations and documenting methodologies, QVPs bridge the gap between illiquid investments and transparent, disciplined reporting.

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