Here's the problem in plain terms: most funds presenting to NAV lenders are handing over ASC 820 valuation reports that were designed for a completely different purpose. These reports were built to satisfy auditors, to demonstrate that a fund's financial statements fairly present portfolio value under GAAP. That's a legitimate and important purpose. It's just not the same as giving a lender a defensible, actionable picture of their collateral.
I've produced thousands of these reports. The methodology is often sound. The numbers may be reasonable. But as a document designed to support a lending decision, they routinely fall short in ways that should concern any credit team doing serious underwriting.
Here's what I think NAV lenders should actually be asking for, and why most reports aren't delivering it.
A Clear Independence Attestation, And I Mean Actually Independent
This sounds basic. It isn't, and the industry's dirty secret is why.
Most ASC 820 reports aren't produced by truly independent valuators. They're produced by firms functioning as the fund's valuation back office.
“We want to carry this at $X per share — can you get that through audit defensibly?”
The valuation firm obliges, the report gets filed, and everyone moves on. Until the auditor calls bullshit. At which point the fund points at the report and the valuation firm gets thrown under the bus.
I've watched this dynamic play out more times than I'd like. It's not always cynical. Sometimes it's just a fund with strong conviction about a company's value asking a valuator to validate their thinking. But the structural problem is the same: the valuator isn't independent, and when the number gets challenged, nobody is actually standing behind it.
For NAV lending this matters more than it does for financial reporting purposes. Lenders need to know the valuation supporting their facility was produced by someone who had no interest in what the answer came out to. That requires explicit documentation: the engagement letter, the independence attestation, and the report itself all need to be unambiguous. As NAV lending grows and regulatory scrutiny follows, the SEC has already signaled interest in this space. “We got a report from a firm” is not going to be a satisfying answer to an examiner. Neither is a report produced by a firm that was effectively working for the fund.
Methodology Explained for a Non-Auditor Reader
820 reports are written for auditors. Auditors know what a guideline company method is. They understand why a 4.2x EV/Revenue multiple was selected. They can read a methodology section and evaluate it.
Your credit team may not have that background. And even if they do, they shouldn't have to reverse-engineer the valuation logic from dense technical language to understand what they're actually holding as collateral.
A report designed for NAV lending should lead with conclusions, surface key assumptions prominently, and make the judgment calls visible. What comps were used and why. What the range of defensible outcomes looks like. Where the valuator exercised discretion and why they landed where they did. This isn't dumbing it down. It's making the analysis legible to the people making credit decisions.
Proper Treatment of SAFEs and Convertible Notes
This one matters more than most people realize, and I'll write a full piece on it separately. The short version: funds with early-stage portfolio companies are frequently carrying SAFEs and convertible notes at cost. The rationalization is understandable. It's a note, it hasn't converted, cost feels conservative. But it's technically incorrect under ASC 820, and it creates a collateral picture that may be materially wrong.
The fair value of a convertible instrument moves with the value of what it converts into. If a company has grown significantly since a SAFE was issued, carrying that SAFE at cost understates NAV. If it's deteriorated, cost overstates it. Either way, the lender doesn't have an accurate picture.
For any fund with meaningful exposure to pre-Series B companies, this is the single most likely source of NAV misstatement. Ask specifically whether convertible instruments have been independently marked or carried at cost. The answer will tell you a lot.
Downside Scenario Analysis
Standard 820 reports give a point-in-time fair value mark. That's what they're designed to do.
Lenders need something different. You're not asking “what is this worth today under normal conditions?” You're asking “what is this worth if things go sideways: if revenue contracts, if multiples compress, if the exit environment stays difficult for another two years?” Those are very different questions and the standard report doesn't touch the second one.
I'm not suggesting every 820 report needs to become a stress-testing exercise. But a NAV lending specific valuation should include at minimum a sensitivity analysis showing how portfolio values move under adverse assumptions. A 20% revenue haircut. A multiple compression scenario. A delayed exit timeline. These aren't exotic requests. They are basic credit underwriting inputs that the standard report format simply wasn't designed to provide.
Period-Over-Period Methodology Consistency
NAV lenders are tracking collateral value over the life of a loan, not evaluating a single snapshot. This means consistency across quarterly marks matters enormously.
A good auditor will ask why methodology changed between periods and require documentation. But there are plenty of funds, and plenty of 820 valuation firms that should know better, where this simply doesn't happen. The valuator switches from a revenue multiple to an EBITDA multiple between quarters, or changes the comp set, or adjusts the discount for lack of marketability, with no explanation. The numbers just change.
For a lender monitoring a facility, unexplained methodology shifts are a serious red flag. They make it impossible to distinguish genuine portfolio value changes from valuation approach changes. A NAV-lending-specific engagement should include explicit period-over-period methodology documentation: what changed, what stayed the same, and why. If your current valuation provider can't produce that bridge, that's worth understanding before the auditor asks the same question.
Portfolio Concentration Flagged Explicitly
If three companies represent 70% of a fund's NAV, that's material information for collateral underwriting. Standard 820 reports list values. They don't surface concentration risk in a way that's actionable for credit teams.
A simple concentration summary covering top five holdings as a percentage of NAV, sector concentration, and vintage concentration gives lenders an immediate read on where the real collateral risk sits. It takes half a page. It's almost never included.
Committed Turnaround Tied to Covenant Timelines
This isn't a content gap. It's a structural one. Standard valuation engagements aren't built around covenant reporting deadlines. The report arrives when it arrives. For quarterly marks tied to loan covenants, that's not acceptable.
A NAV lending valuation engagement should include a committed delivery timeline aligned to the fund's reporting calendar. If the covenant requires quarterly marks to be delivered to the lender by a specific date, the valuation firm needs to have that date in their engagement letter and be accountable to it. This sounds obvious. It rarely happens in practice.
An Engagement Structure Built for Repetition
NAV lending valuations aren't one-time events. They're quarterly, sometimes monthly. The fund-valuator relationship needs to be structured accordingly.
What that means practically: the same senior reviewer on every engagement, not a rotating analyst team. A methodology that's documented and applied consistently. An intake process that gets more efficient over time as the valuator develops deep familiarity with the portfolio. Pricing that reflects the ongoing nature of the relationship rather than per-engagement fee structures that treat every mark as a new project.
The best NAV lending valuation relationships function less like an outside vendor and more like a specialized piece of infrastructure, quietly doing its job every quarter without drama, delay, or methodology drift.