This week’s Venture Spotlight is Arik Van Zandt, ASA – Senior Manager in Grant Thornton LLP’s Economic Advisory Services Group.

Arik grew up in Bellevue before he strayed to Palo Alto where he graduated from Stanford University.  While at Stanford Arik played infield for the baseball team that VanZandt06.JPGwent to the College World Series all four years.  Arik found his way back to the Northwest where he currently lives on the eastside with his wife and two kids.  At Grant Thornton, Arik specializes in the valuation of private companies operating in a variety of industries for purposes of litigation support, acquisitions, sales, estate planning, and taxation.  Arik also provides expert witness testimony through the calculation of economic damages for business damage claims, personal injury, wrongful death, and labor related disputes.  Prior to re-joining Grant Thornton, Arik was the CFO of a securities broker-dealer where he was responsible for all accounting, finance, legal, and compliance for the firm during a time of rapid growth.

What trends are you seeing in private company valuation?

Valuations are healthier overall, and in some sectors – social media and gaming in particular – valuations have skyrocketed.  There has been a lot of money sitting on the sidelines for the past couple of years, and it has really rushed back to the marketplace in an almost gold-rush fashion for some companies.  The Great Recession created a virtual double whammy on company valuations.  Not only did a company’s financial statistics suffer from the decline in the economy (i.e., revenue, EBITDA, net income, etc.), but valuation multiples went down as well.  EBITDA multiples, for instance, were more than a third lower in 2008-2009 than they were in the four years prior to that.  With company financials improving and positive emotion among the investing community, we are primed to see significant increases in valuations.

What advice would you give a private company CEO or CFO in terms of how and when they should think about getting their company valued?

Many regulations, such as Section 409A of the Internal Revenue Code, require that a company value its shares in order to properly account for its stock-based compensation.  The fair market value of the company’s shares granted needs to be reasonable and defensible.  It is no fun for a shareholder to end up with a tax event because the grant price of an option is too low.

From a strategic standpoint, a company should think about getting valued once it has its house in order.  Financials should be complete and accurate; discretionary expenses of the owners should be off the books; and the right management team is in place not only for growth but sustainability.  Once these are in place, not only can a strong supportable conclusion of value be determined, but a potential investor or buyer will have more confidence in the company’s prospects.  All of this will factor into a higher return and better results for the current shareholders.

How did you get into the valuation field?

I was an economics major at Stanford and thought that I wanted to go to law school.  I don’t know if it was wise or lucky but I discovered that I could combine my analytical education with my interest in law, by doing business valuations and economic damage claims, many of which are for litigation support.  It ended up being the best of both worlds for me.

What is your background?

I was actually hoping to play baseball for a living but apparently didn’t spend enough time in the batting cage and instead graduated from college early.  I took an internship at Morgan Stanley in the Bay Area during my senior season at Stanford and then returned to the Northwest to start building my career.  After some years at Grant Thornton, I became the CFO of a securities broker/dealer.  There was an entrepreneurial itch that I needed to scratch and a skill set and knowledge that I wanted to obtain by being on the operational side of a company.  Now I am back at GT and I wouldn’t trade my in-house experiences for anything.  I have a new appreciation and understanding of what business operators go through and that helps me have a more meaningful dialogue with my clients, which eventually adds more value for their businesses.

What do you like most about the work you do?

I really enjoy getting to know so many great business owners and operators and being able to help them think about their business in a different way.  Our discussions focus on areas of operational excellence, how they stack up to market comparables, and elements of risk that all lead to value creation.  Business owners and operators have so many other things to think about on a daily basis that once we put it all together, everyone in the room has a better understanding of the company.