---
title: "What Is Fair Value?"
term: "Fair Value"
description: "Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date—used to mark private holdings on fund books."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/fair-value
---

# What Is Fair Value?

> Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date—used to mark private holdings on fund books.

**Fair value** is the estimated exchange price for an asset in an orderly, arm's-length sale at the measurement date— the standard funds and auditors use to mark private company stakes between transaction events.

### How it works

Under U.S. GAAP (ASC 820), fair value hierarchy favors observable market prices, then comparable company inputs, then model-based techniques. Venture funds mark each portfolio company quarterly: unchanged if no new info, adjusted for down rounds, secondary trades, or material KPI changes. GPs document methodology for LP reporting and [paper gain](/glossary/paper-gain) tracking.

Startups encounter fair value through **409A** appraisals setting common stock strike prices for options—distinct from preferred round price but conceptually related. Public comparables, recent financing, and milestones feed both processes. Fair value is not the same as **fair market value** in all tax contexts, though practitioners often align them.

Illiquid stakes require judgment; identical companies can receive different marks from different holders in the same quarter.

### Why it matters

- **Founders:** Option grants and secondary approvals reference fair value; surprises hit when 409A rises after a big preferred round, shrinking employee upside on old grants.
- **Investors:** Marks drive fund TVPI and LP statements; aggressive marking inflates fundraising track records until DPI catches up.

### Common mistake

Treating last round price as permanent fair value. Without new equity pricing support, auditors often require write-downs when performance misses plan.

### Related ideas

See [paper gain](/glossary/paper-gain), 409A, ASC 820, and [benchmark](/glossary/benchmark) multiples.

## FAQ

### What is fair value in simple terms?

It is the best estimate of what an investment would sell for today in a normal market—not a fire sale, not a wishful price. Funds use it to report portfolio value between funding rounds.

### Why does fair value matter?

LP reports, NAV-based vehicles, and option pricing depend on fair value marks. Founders see it in 409A valuations for stock options and in down-round discussions when marks trail last round price.


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Source: https://venturecapitaltracker.com/glossary/fair-value