A private company has no ticker and no daily trade to read a price from, so its value has to be built rather than looked up. An advisor who understands how that number is built can explain with precision what moved, and what did not, when a client’s mark changes.
What Is a Valuation?
A valuation is an estimate of what a business is worth, expressed as of a specific date. It usually takes one of two forms: enterprise value, which captures the value of the whole operating business, what it would take to buy the company outright, debt and equity combined, or equity value, which is enterprise value minus net debt, meaning what would be left for the owners after paying off what the business owes.
For a public company, that estimate is produced continuously, by the market itself. Buyers and sellers trade the stock every day, and the most recent trade price, multiplied by the share count, gives an equity value in something close to real time. Nobody has to build that estimate by hand. It is simply observed.
A private company has no such mechanism. Its shares do not trade on any exchange, no daily auction sets a price, and long stretches can pass between one arm’s-length transaction (a sale, a recapitalization, a new financing round) and the next. Between those transactions, somebody still has to answer the question of what the business is worth today, and answering it requires building an estimate deliberately, using a defined process, rather than reading a number off a screen.
That distinction, observed versus built, is the starting point for everything that follows.
How Firms Arrive at a Valuation
Fair value accounting standards (FASB ASC 820) recognize three broad ways to build that estimate, and most institutional managers rely on some combination of the first two.
The market approach starts from other businesses. Find companies that are reasonably comparable to the one being valued, in industry, size, growth rate, and margin profile, and observe what the market currently pays for earnings at businesses like that. That “what the market pays” figure is the multiple, defined in detail below. Apply it to the company’s own earnings, and the result is the estimate.
The income approach starts from the business itself. Project the cash flows the company is expected to generate over some future period, and discount those projected cash flows back to a present value using a rate that reflects how risky they are. This method leans harder on assumptions about the future, and is used more often for early-stage or high-growth companies whose current earnings understate what the business will eventually produce.
A third method, the asset approach, values a business based on the net value of what it owns. It is more relevant to holding companies and asset-heavy businesses than to an operating company valued on its earnings power.
For a private equity or private credit holding with a real operating history and a real earnings number, the market approach is the workhorse. It is the most directly observable of the three, anchored in what other, similar businesses actually changed hands for, rather than in a set of projections the fund itself produced.
What a Multiple Actually Is
A multiple is a ratio. It states that a business is worth some number of times a specific financial metric, most often EBITDA (earnings before interest, taxes, depreciation, and amortization, a standard proxy for the cash-generating power of the core business) or, for earlier-stage or fast-growing companies where earnings do not yet reflect scale, revenue.
Concretely: a business with $10 million of EBITDA and a 6.0x multiple has an implied enterprise value of $60 million. The multiple does all the work of translating a single line off the income statement into a dollar figure for the whole business.
A multiple is not a number a fund chooses on its own. It is external evidence, developed one of two ways. The guideline public company method looks at publicly traded companies that are reasonably comparable, and works backward from their share price to the multiple of earnings the market is implicitly paying for a business like that. The guideline transaction method looks at completed acquisitions of similar private companies, and uses the multiple the actual buyer actually paid. Either way, the number comes from outside the company being valued.
What a multiple encodes is worth sitting with, because it is not simply a measure of size. Two companies with identical EBITDA can carry very different multiples if one is growing faster, operates in a more defensible niche, or is less exposed to a single customer or supplier. A multiple is the market’s shorthand for growth prospects, risk, and how much competition exists to own that kind of business right now, compressed into a single number.
How the Two Pieces Combine Into a Valuation
Put the two ideas together and the arithmetic is simple: enterprise value equals the multiple, multiplied by the earnings metric. Two inputs, one on each side of that equation.
The earnings side is a fact about the specific company: how much EBITDA or revenue it produced over the relevant period. It comes from that company’s own financial statements, and it changes only when the company’s own operating performance changes.
The multiple side is a fact about the market: what buyers are currently willing to pay for a dollar of that kind of earnings, given today’s cost of capital, today’s credit conditions, and today’s appetite for that sector and that size of company. It has nothing to do with any single company’s performance, and it moves for reasons that apply to every business in that peer group at once.
A valuation, in other words, is never a single fact. It is the product of a company-specific fact and a market-wide fact, multiplied together, and both of those facts can move independently, in the same direction or in opposite directions, within the same reporting period.
What “the Mark” Means on a Client’s Statement
A “mark” is that valuation estimate, dated. It is a fund’s determination of what a specific holding, or the fund as a whole, is worth as of a specific valuation date, most often quarter-end. Aggregated across every holding in a fund, it becomes the fund’s net asset value, and net asset value is what shows up as the dollar figure on a client’s account statement.
It helps to be explicit with a client about what that figure is not. It is not a price at which the holding was bought or sold that day. Nobody transacted at that number. It is the fund’s best current estimate, built the way described above and reviewed on the schedule described later in this article, and it will be revisited and rebuilt again at the next valuation date.
That is also why a mark can move. Because it is built from two separate inputs, either one can change between one valuation date and the next, and the mark simply reflects whichever combination of changes occurred. The rest of this article works through exactly how that plays out, because it is the part of the mechanism most advisor conversations skip past.
Multiple Compression, Defined
Multiple compression is a decline in that market-wide input: the rate buyers currently apply to a dollar of earnings. It has nothing to do with whether the earnings themselves grew, shrank, or held flat. It reflects a change in market participants’ willingness to pay, driven by the cost of capital, the availability of acquisition debt, sector sentiment, or how competitive the buyer pool is for a given size and type of company at a given moment.
Deal size is one of the clearest illustrations, because multiples do not compress or expand uniformly across a market. GF Data reported an average multiple of 7.0x EBITDA for platform transactions under $100 million in 2025, against 9.8x for platforms between $100 million and $500 million, a 2.8-turn spread. PitchBook’s 2025 Allocator Solution: Private Market Opportunities report put the median EV/EBITDA multiple at 15.5x for buyouts of $1 billion or more in 2024, versus 12.8x for deals under $1 billion. None of that spread describes how any individual company performed. It describes what buyers were willing to pay for companies of a given size, in a given credit environment, at a given point in the cycle.
Credit conditions move the multiple line directly. GF Data recorded average total debt financing of 4.0x trailing-twelve-month EBITDA on middle market deals in the first half of 2025, up from 3.7x in 2024. When lenders will finance more of a purchase price, buyers can bid a higher multiple for the same equity check, and when lenders pull back, the opposite happens. A multiple moving with the credit cycle is a statement about financing markets. It is not a statement about the company underneath it.
When Earnings Grow and the Multiple Still Wins
The mechanic is easiest to see with a single hypothetical holding, worked in full. The figures below are illustrative only and do not describe an actual BIP Capital, BIP Ventures, or LAGO Asset Management fund, portfolio company, or holding.
The business grew. Earnings rose 15 percent year over year, which by any operating measure is a strong result. The enterprise value fell 8 percent in the same period, because the multiple applied to those earnings compressed by 20 percent, more than enough to overwhelm the earnings gain. An advisor looking only at the enterprise value, or at a fund’s blended net asset value built from many holdings like it, sees a decline. That decline says almost nothing about how the company performed. It says the market re-rated businesses like it, and this company happened to be one of them.
The reverse case is the more dangerous one for an advisor to miss. A weaker operating year, papered over by an expanding multiple, produces a rising mark that looks like manager skill and is actually market tailwind. Bain & Company’s 2025 Global Private Equity Report found that over the trailing decade, revenue growth drove 52 percent of value creation in software buyout returns, multiple expansion drove 42 percent, and margin improvement contributed just 6 percent. Bain’s 2026 report describes that multiple-expansion tailwind as largely gone, framing the shift as “12 is the new 5”: roughly the annual EBITDA growth a deal now needs to hit historical return targets, once multiple expansion is stripped out of the equation. A track record built mainly on the multiple line is a bet on market conditions repeating. A track record built on the earnings line is evidence of a repeatable process.
The Same Mechanic Changes Loan-to-Value in Private Credit
Private credit funds do not report enterprise value as the headline number, but the mechanic underneath is identical. Loan-to-value, the ratio advisors and lenders watch most closely, is calculated as the current outstanding debt on a position divided by the estimated enterprise value of the borrower. Enterprise value is itself built from the same market approach described above: a multiple applied to the borrower’s earnings. Many private credit valuation policies across the industry calculate loan-to-value this way, with the underlying enterprise value and multiple reviewed on a rotational basis by an independent third-party valuation firm.
That means loan-to-value can rise even when nothing about the loan or the borrower’s operating performance has changed. If the multiple applied to the borrower’s earnings compresses, the enterprise value in the denominator falls, and loan-to-value rises arithmetically, whether the borrower’s earnings did anything but grow.
The loan did not grow. The borrower’s earnings grew 15 percent. Loan-to-value still rose, because the enterprise value used to calculate it compressed along with the sector multiple. An advisor who sees loan-to-value tick up and describes it to a client as rising credit risk, without checking which input moved, has told the client a story the numbers do not actually support.
The Questions an Advisor Should Ask Before Explaining a Mark to a Client
An advisor who can answer those four questions is not guessing in front of a client. A markdown caused by a sector-wide multiple move and a markdown caused by a weakening business call for two different conversations, and confusing them either alarms a client who has nothing to worry about or reassures a client who has something to worry about. Eliminate the black box, and the right conversation becomes the only conversation available.
Advisors who want to see this decomposition applied to a specific fund or holding can work directly with BIP Capital’s investment team to walk through how a current mark splits between earnings and multiple, position by position.