Understanding the value of your Brightspark LP units and setting a price for a Secondary Sale
Review what you own: units in a Brightspark fund
As a reminder, you own units in one or more Limited Partnership (LP) funds. Each fund has invested capital in a portfolio company, which we refer to as that fund's “target company”.
Your primary LP units were initially bought at the price of $1 per unit, and their value fluctuates over the lifetime of that Fund.
Understand how your units are valued
The estimated Fair Market Value (FMV) of the units is Brightspark’s estimation of the unrealized value of these units. It is based on the FMV of the fund’s target company, which is determined using the Canadian Venture Capital Association’s valuation policies.This value is net of fees that have been paid to Brightspark, but includes any unused fees which will be transferred to the new unit owner. Because of this, if there hasn’t been a new financing since the original investment, it is possible that the estimated FMV is lower than the original price paid.
Additionally, for the purpose of secondary selling, we subtract the carry that would be paid to estimate the most accurate value of an investment, since it represents the net amount that would be paid to the original unit owner if a liquidation event occurred today. Using this amount as a starting point for a secondary selling price ensures fairness for the buyer of your units – they will be responsible for the full payment of carry based on your initial investment price should there be a liquidity event in the future.
As a reminder, when there is a liquidity event, the Fund receives the proceeds of the exit and returns all of the limited partners’ initial contribution first. Then, the Fund distributes a portion of the remaining profits, and a small percentage goes to Brightspark as "carried interest" or “carry fee”. The carry percentage varies from fund to fund - consult your Limited Partnership Agreement for details.
It is clearly understood that the estimated value of investments may go down as well as up, especially in the case of a high-risk asset class such as early-stage companies. We would expect the unrealized value of most of these investments to change substantially in future years: some are likely to appreciate, and others to depreciate, and it is nearly impossible to predict. FMV can also fluctuate with exchange rates in cases where the investment in the target company was based on a foreign currency valuation (typically US dollars) while we report in Canadian dollars.
Decide on a discount
Why do I need to set a discount?
Investors should not necessarily expect to sell their units at a premium, or at the current unrealized FMV net of carried interest – a discount is usually required, given illiquidity of the asset class. Generally speaking, lower asking prices with a discount (usually ranging from 15% to 30%, depending on the fund) will make it more likely to find a match with interested buyers.
Further reading: What are the differences between public and private markets?
Do your own due diligence:
Review the information below to help you assess what discount buyers might look for. Prospective buyers will have access to the same information as you before deciding on the price they want to pay for the units.
- Review Documents: The Limited Partnership Agreement outlines the terms of your original investment, the Quarterlies Reports contain information on the fund’s target company, including Brightspark’s commentary and key metrics, and theFinancial Statements outlines the financial health of the fund.
- Review your Portfolio: The detailed page of the Fund has the latest information about the company and Brightspark's financing history.
- Further research: Review recent press from the company, funding history, the company website, competitive companies and other exit valuations.
Finally, make sure you understand the amount paid to you upon the secondary sale being finalized
The amount paid to you is the final sale price, net of Brightspark's 10% commission.
This commission helps finance our rigorous review process, servicing, legal and compliance overhead, marginal transaction costs, and our efforts to grow and improve the efficiency of our platform. This amount is automatically subtracted from the amount being paid back to you after a successful sale.
Note that the owner of the fund units will only receive capital back if there is a successful sale of your units.