NAV vs Fair Value: Key Differences Explained

Net Asset Value (NAV) is the total value of a fund's portfolio at a given point in time, net of liabilities. It is calculated by summing the fair values of all portfolio investments, adding cash and receivables, and subtracting fund-level liabilities (management fees payable, expenses, etc.). NAV is the fund-level metric that LPs use to track their investment value. It determines the basis for calculating TVPI (total value to paid-in capital). As individual portfolio company fair values change — through new financing rounds, write-downs, or write-offs — NAV changes accordingly. Most VC funds report NAV quarterly. NAV is also the number that does mechanical work in fund operations, not just reporting. Quarterly capital account statements allocate NAV to each LP according to its share of contributions; secondary buyers price LP interests as a premium or discount to the most recently reported NAV; and NAV-based credit facilities lend against it. The quarterly roll-forward is the standard presentation: beginning NAV, plus capital called, minus distributions, plus or minus the net change in unrealized value and fund expenses, equals ending NAV. Because the unrealized component dominates a venture fund's NAV for most of its life, LPs read NAV alongside its realization mix — the same NAV means something very different at year three, when it is almost entirely marks, than at year nine, when most value should have converted to distributions.

Fair Value is the estimated value of an individual portfolio company holding at a given measurement date. Under ASC 820 (US GAAP), fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants. For venture portfolios, fair value is typically determined by reference to recent financing rounds (the most common method), comparable company multiples, or option pricing models (OPM) for earlier-stage holdings. Fair value is an estimate — not a realized price — and is subject to significant judgment. Each quarter, fund accountants and auditors must assess whether the last round price still reflects fair value or requires adjustment. Fair-value measurement under ASC 820 organizes valuation inputs into a three-level hierarchy, and knowing where venture positions sit explains why marks deserve skepticism. Level 1 is quoted prices in active markets — relevant only for post-IPO shares a fund still holds, and even then locked-up shares may warrant a discount for the restriction. Level 2 is observable inputs other than quoted prices. Level 3 is unobservable inputs — and essentially all private venture positions are Level 3, meaning the GP's own judgment, applied through methods like recent-round calibration, comparable-company multiples, or option-pricing models that allocate value across preference stacks. Industry valuation guidance (such as the AICPA's guide on portfolio company investments and the IPEV guidelines) frames the accepted approaches, but Level 3 marks remain estimates, which is why auditors test them and sophisticated LPs track how a GP's marks have historically compared to eventual exits.

Both are essential but serve different purposes. GPs need to rigorously assess fair value at the individual company level — it's both a GAAP requirement and an LP trust issue. LPs care most about NAV as the summary of what their investment is worth today. The most important caveat: NAV is unrealized value. DPI (distributions to paid-in) is the only metric that reflects actual cash returned. For an emerging manager, the operational takeaway is to treat valuation as policy, not improvisation: adopt a written valuation policy, apply it consistently quarter to quarter, document the method and inputs behind every Level 3 mark, and mark down as promptly as you mark up. LPs forgive losses; they do not forgive stale or defensive marks, and a GP's realized-versus-marked track record follows them into every future fundraise.

A $100M fund has 20 portfolio companies. Each quarter, the fund's accountants assess the fair value of all 20 holdings. Company A just raised a new round at a higher valuation — its fair value increases. Company B's revenue declined significantly — its fair value is written down. The updated fair values of all 20 holdings are summed, cash is added, liabilities subtracted, and the result is the fund's NAV for the quarter. A fuller worked example rolling three positions into fund NAV, then into TVPI. A $50M fund has called $30M from LPs and distributed $12M from one early exit. Its remaining portfolio is three companies. Company A: the fund invested $4M, and a new financing round just priced the fund's stake at $12M — the mark is calibrated to that transaction. Company B: no recent round, so the GP marks the $5M-cost position at $7M using revenue multiples from comparable public companies, adjusted for size and liquidity. Company C: performance has deteriorated, and the position is written down to $1M. Add $2M of fund-level cash and subtract $0.5M of accrued liabilities: NAV = $12M + $7M + $1M + $2M − $0.5M = $21.5M. Now the fund-level metrics: DPI = $12M ÷ $30M = 0.40x; RVPI = $21.5M ÷ $30M ≈ 0.72x; TVPI = ($12M + $21.5M) ÷ $30M ≈ 1.12x. Note the composition: of the 1.12x, only 0.40x is realized cash, and $19.5M of the $21.5M NAV rests on Level 3 marks — one calibrated to a fresh round, one on multiples, one a judgment-heavy write-down. Same arithmetic, three very different grades of evidence.