Fund markdowns: why a startup's value changes without a new round

Funds that hold shares in private companies must tell their own investors what those shares are worth. A startup has no daily stock price, so the fund estimates a figure, called fair value. When the estimate falls, the fund marks the holding down. When it rises, the fund marks it up.

The estimate appears in the fund's regular reports, usually every quarter or half-year. A markdown therefore reflects the fund manager's view, backed by a valuation method, and not a trade. No buyer has paid the lower price.

The live case: in October 2026 it was reported that a Baillie Gifford fund valued its 1.3% stake in VerSe Innovation, the parent of Dailyhunt, at $7.47 million as of 31 August, implying about $576 million for the whole company and nearly 90% below the 2022 peak of $5 billion.

Funds are asked to be careful about fair value because the numbers go to their own investors, who use them to judge the manager. A manager with a strong incentive to show high values can delay cuts, so independent valuers and audits are used as a check.

Valuation guidelines say the strongest evidence is a recent real transaction in the company's shares, such as a funding round at arm's length. As time passes, that price gets stale, and the fund adjusts it using other evidence. The common methods follow.

The method chosen depends on the stage. A young company with little revenue is often valued from its last round price and from signs of progress, such as new customers or partnerships. A mature company with steady sales is easier to value with multiples and cash flows. Whatever the method, the valuer should explain the main inputs, such as the multiple used and the discount applied, and the fund should be able to defend them when asked. A good practice is calibration, which means checking the model against the price paid in the last real deal and adjusting for what changed since then.

• Recent round price, adjusted for what has changed since.
• Market multiples: the value of listed rivals, scaled to revenue or earnings of the startup.
• Discounted cash flow: future cash flows brought back to a present value, used for steadier businesses.
• Cost or net assets, used for early companies with no reliable revenue.
• Offers: a genuine bid from a buyer for the shares or the company.

For funds registered with SEBI as alternative investment funds (AIFs), the AIF Regulations 2012 and SEBI's AIF Master Circular require Category I and II funds to have their investments valued by an independent valuer, as of November 2026, at least once every six months. The period can stretch to a year if investors holding at least 75% by value agree. Unlisted holdings are valued by the guidelines of the International Private Equity and Venture Capital Valuation (IPEV) body, which SEBI treats as the approved industry standard.

The valuer must be registered, and SEBI's valuation framework circular of 2024 tightened who qualifies. Overseas funds, such as the Baillie Gifford fund above, follow their home-country fair value rules and publish values on their own schedule. Rules are amended often, so check the latest SEBI text.

Reasons include a fall in the prices of listed rivals, weaker revenue or a growth slowdown, higher losses, a failed attempt to raise money, or the departure of key staff. A change in the fund's own method counts too. If an old round price looks too high next to peers, the valuer will move toward market multiples.

Time alone can push a value down. A round priced in 2021 or 2022 grows stale. Many funds applied discounts to those marks once the market fell, even when the startups had not raised again.

Another driver is the exit market. If recent public listings of similar companies trade below their issue price, funds tend to lower the value of private peers that would list next. When listed peers recover, the same funds often raise their marks without any new round, which is why markdowns are not a permanent verdict.

No. A down round is a priced event: the company sells new shares at a lower valuation than before, and the new price binds everyone. A markdown is only a fund's estimate of its own holding, and other funds holding the same company can mark it differently. One fund could mark a startup down 90% while another holds it near the last round price.

A markdown can still be the early sign of a down round. If several funds cut the value, the company's next round is likely to be priced lower, or may be hard to close.

For employees and founders, the practical effect is on morale and on the ability to hire with share options, since a lower reported value can make options look less valuable even when the company is trading well. For lenders, it can tighten terms. For the fund, a markdown reduces its reported performance measures, such as the net asset value per unit and the ratio of value to money invested, until the holding recovers or is sold.

No, not directly. The startup's valuation, as the market sees it, is set by what a buyer would pay in a round or sale. A fund's reported number is an input to the debate, and journalists and rivals read it, but the company's real value is only proven at the next deal.

Indirect effects are real, though. A visible markdown can make new investors cautious, anchor negotiations at a lower figure, and affect employee share options valued at the company's last round. It can also cause a round to fail or be restructured.

Look at what is being valued and when. The implied value in a story is a division: the fund's reported value of its stake divided by its ownership percentage. A 1.3% stake worth $7.47 million implies about $575 million, which is why the headline figure is called implied. Small stakes and rounding make the result rough.

Check the date of the valuation, since it can be months old. Check the method, whether other funds agree, and whether the company has said its own number. Finally, compare it with the peak price. A markdown from a record peak is not the same as a cut from a recent round.

This guide explains the idea and is not investment advice.