When and How to Mark Up Portfolio Companies

Marking up a portfolio company feels like good news — and usually it is. But get the timing wrong, report an inflated unrealized value, or apply inconsistent methodology, and you're looking at LP trust erosion, SEC scrutiny, and a carried interest calculation that may not survive the light of day at fund close. For emerging managers especially, portfolio markup policy is one of those operational details that separates institutional-grade funds from everyone else.

This guide breaks down the mechanics, standards, and judgment calls behind portfolio markups — when to do them, how to size them, and what documentation keeps you protected.

What Is a Portfolio Markup in Venture Capital?

A portfolio markup is an upward revision to the carrying value of an unrealized investment on a fund's books. When you first write a check into a startup, you typically carry that position at cost. As the company hits milestones, raises new rounds, or receives third-party valuations, the fund marks up the position to reflect the implied current fair value.

Markups directly affect two critical fund metrics:

• TVPI (Total Value to Paid-In): Includes unrealized value, so markups increase this multiple
• DPI (Distributions to Paid-In): Unaffected — it only moves when you actually return cash

This distinction matters enormously. A fund with a 3.0x TVPI and a 0.2x DPI is a very different proposition from a fund with a 3.0x TVPI and a 2.1x DPI. Sophisticated LPs know this, which is why how and when you mark up has direct implications for how your fund is perceived — and whether you raise the next one.

The Governing Standard: ASC 820 and Fair Value Measurement

In the United States, venture funds are required to follow ASC 820 (Accounting Standards Codification Topic 820), which defines fair value as the price that would be received in an orderly transaction between market participants at the measurement date.

This means carrying value isn't what you think the company is worth — it's what a hypothetical willing buyer would pay in a current transaction. That's a more disciplined and sometimes humbling standard.

ASC 820 outlines three valuation approaches:

1. Market approach: Comparable transactions, recent financing rounds, public market comps
2. Income approach: Discounted cash flow models (rarely used for early-stage startups)
3. Cost approach: Net asset value; typically a floor, not a primary method

The IPEV (International Private Equity and Venture Capital) Valuation Guidelines are also widely referenced, particularly by funds with European LPs or those following best practices beyond minimum GAAP compliance. IPEV aligns closely with ASC 820 and emphasizes using the most relevant and recent data available.

Most VC funds default to the market approach using recent financing rounds as the primary indicator of fair value — which is both practical and defensible.

When to Mark Up: Key Triggers

There is no universal rule that says you must mark up a company at a specific moment. But there are common triggers that create both the opportunity and the obligation to reassess carrying value.

Priced Financing Rounds

The most straightforward trigger for a venture capital markup is a new priced round led by a credible third-party investor. When a Series B investor writes a check at a $150M post-money valuation and your fund invested at a $20M post-money, that price discovery is strong evidence supporting a markup.

Key considerations here:

• The new round should be arm's-length — insider-led rounds or bridge notes with minimal outside participation are weaker justification
• Consider the rights and preferences of the new shares versus your existing shares. If the new investor gets a 2x liquidation preference and you don't, your economic position may not have improved proportionally
• Time elapsed since your original investment matters. A markup at a 10x step-up in valuation six weeks after your initial check invites scrutiny

Significant Company Milestones

Even without a new round, meaningful operational milestones can support a markup, particularly for companies that have been stagnant at cost for 12-24+ months. Examples include:

• Crossing material revenue thresholds (e.g., reaching $1M ARR, $10M ARR)
• Signing an enterprise contract with a Fortune 500 customer
• Receiving an acquisition offer (even if declined) that implies a specific valuation
• FDA approval, regulatory clearance, or other binary risk events resolved favorably

These milestone-based markups are harder to defend without supporting documentation. You'll want to show the methodology — comparable company multiples, relevant transaction comps — in your quarterly reporting and board materials.

Secondary Market Transactions

If a credible secondary transaction occurs at a specific price — even involving shares held by employees, angels, or other early investors — that transaction can inform fair value. Secondary market pricing has become more sophisticated and data-rich over the past decade, with platforms like Forge Global and EquityZen providing more transparent price discovery for late-stage private companies.

Public Market Comparables Compression or Expansion

For later-stage companies where revenue multiples are a primary valuation driver, the public market environment matters. If SaaS multiples compressed 60% in 2022 (which they did), a fund carrying a Series D SaaS company at a revenue multiple from 2021 has a legitimate — and in some cases legally required — obligation to mark down, not up.

The inverse is also true. If public comps have expanded meaningfully, a company carried at cost or at a prior round price may be understated.

How to Size a Markup: Methodology in Practice

Getting the timing right is only half the job. The amount of a markup requires a defensible methodology that you can replicate consistently.

Option Price Method (OPM) and PWERM

For venture-stage companies with complex capital structures (multiple liquidation preferences, participation rights, warrants), the Option Price Method (OPM) allocates enterprise value across share classes based on their option-like payoff profiles. This prevents you from simply multiplying shares outstanding by the new round price — which would overstate the value of common shares if preferred investors have stacked liquidation preferences.

The Probability-Weighted Expected Return Method (PWERM) models multiple exit scenarios (IPO, M&A, dissolution) with assigned probabilities and uses the weighted average outcome as fair value. PWERM is more common at later stages where a discrete set of near-term outcomes is identifiable.

Using Revenue Multiples

For companies with meaningful revenue, you can triangulate value using comparable public or private company multiples. As of mid-2025:

• High-growth SaaS (>40% YoY growth): typically trading at 8-14x forward revenue in public markets
• Vertical SaaS or lower-growth software: 4-7x forward revenue
• AI infrastructure and tooling: significant dispersion, but often 15-25x ARR for companies with high retention and scale

Apply a private market discount — typically 20-35% relative to public comps — to reflect illiquidity, information asymmetry, and execution risk. The size of the discount should be documented and consistently applied across your portfolio.

Documenting Your Work

Whatever methodology you use, document it contemporaneously — not retroactively when an LP asks. A best-practice markup file includes:

• Valuation date and trigger event
• Methodology selected and rationale
• Comparable companies or transactions used
• Share class analysis (if OPM was applied)
• Conclusion and any adjustments from prior quarter
• Sign-off from investment team or valuation committee

Many institutional LPs now require a valuation committee — a formal group that reviews and approves markups, ideally with at least one independent member. Even at emerging managers running lean teams, establishing a basic valuation committee process signals maturity and reduces the appearance of self-serving markup decisions.

Common Mistakes in Portfolio Markup Policy

Marking Up Too Quickly

A company closes a seed round at a $15M cap note. A month later, a follow-on investor converts at the cap plus a 20% discount. Technically there's been price discovery — but marking up aggressively on thinly traded, insider-friendly transactions makes your TVPI look good while overstating the actual economic progress. LPs who've been around the block will notice.

Ignoring Liquidation Preference Stacks

This is one of the most consequential and common errors. If a portfolio company raises three increasingly large rounds with 1x non-participating preferences, your common-equivalent shares at the seed level may be worth far less than a naive calculation suggests — especially if the company's trajectory has flattened. Failing to account for the liquidation preference stack when marking up inflates unrealized value.

Inconsistency Across Similar Companies

If you apply one methodology to one SaaS company and a different one to a similar company in the same portfolio, your LPs — and auditors — will ask why. Consistency isn't just a best practice; it's a requirement under ASC 820. Your valuation policy should be written down, available to LPs on request, and actually followed.

Over-Reliance on Self-Reported Company Data

Your portfolio company's management team is optimistic. That's partly why you invested. But using management's own revenue projections, user growth forecasts, or perceived competitive positioning as the primary basis for a markup without independent triangulation is a governance failure. Use external data wherever you can.

What LPs Are Looking For

Institutional LPs doing fund due diligence will examine your markup history across prior funds with a critical eye. They want to see:

• Markups that eventually get realized — if your DPI at fund end looks nothing like your historical TVPI, that's a credibility problem
• Markdowns taken proactively, not just when a company clearly fails — funds that only mark down at zero lose credibility quickly
• Consistent policy application over time, not marks that seem to move with fundraising cycles
• Alignment between markups and fundamental business progress, not just valuation round data

The best GPs treat markups as a communication tool, not just an accounting requirement. How you mark your portfolio tells LPs something about how you think about value, risk, and honesty.

Actionable Takeaways

• Write and publish your valuation policy before you have to defend it — ideally before your first close
• Trigger markups on objective events: priced rounds led by credible third parties, material revenue milestones, or meaningful public comp movements
• Use OPM or PWERM for complex capital structures; don't mark up by multiplying total shares by round price
• Apply private market discounts consistently and document your rationale each quarter
• Establish a valuation committee, even informally, to reduce the appearance of self-interested markup decisions
• Mark down proactively — it builds more LP trust than any aggressive markup ever will

Unrealized value in a VC fund is an opinion. The quality of that opinion — how it's formed, documented, and revised over time — reflects directly on your credibility as a manager.