What is Mark to Market?
Mark to market (MTM) means updating an asset's value to reflect what it's actually worth today, not what you paid for it. If you bought shares at $10 and comparable transactions now price them at $25, you mark them to $25. If the market says $6, you mark them down to $6.
Why Mark to Market Matters
Fund performance reporting depends on marking. TVPI is only as honest as the marks behind it. Aggressive marking inflates paper returns. Conservative marking understates them. LPs have learned to scrutinize marks carefully.
For startups, markings ripple through the ecosystem:
- Your last round price becomes the default mark
- Down rounds force painful markdowns across every fund holding your stock
- Secondary transactions can establish new marks
- 409A valuations set the fair market value for tax purposes
The Subjectivity Problem
Private company marks are inherently subjective. There's no public market price. Funds use various methods:
- Last round price (most common, least accurate over time)
- Revenue or ARR multiples based on comparable public companies
- Discounted cash flow analysis
- Secondary transaction prices
- Third-party valuations
Two funds holding the same company can carry it at different marks. This is legal and common.
Formula
Marked Value = Current Fair Market Value × Shares Held
Unrealized Gain/Loss = Marked Value − Original Cost Basis
Example
VC invested $5M at Series A for 1M shares at $5/share.
- After Series B at $20/share: mark to market = $20M (4x unrealized gain)
- Market correction, comparable multiples compress: mark drops to $12M
- Company raises down round at $8/share: mark to market = $8M
The fund's TVPI swings with each revaluation, even though no cash has changed hands. Only DPI reflects actual realized returns.