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Discount for lack of marketability (DLOM)

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Quick Answer

A discount for lack of marketability reduces value to reflect that an interest cannot be sold quickly at low cost.1,2

What it is

It applies to interests that are not readily marketable and is supported rather than assumed — restricted-stock and pre-IPO studies are the usual empirical basis, and the AICPA's valuation guidance sets out how such support is expected to be documented. It is distinct from a discount for lack of control, which reflects an inability to direct the business rather than an inability to sell.1,2

Operational context

What good looks like

Why It Matters

Revenue Ruling 59-60 acknowledges that closely held interests may warrant discounts; it does not license stacking them. Applying a marketability discount to a value that was never measured on a marketable basis double-counts, which is why level of value has to be fixed first.1

Frequently Asked Questions

What is Discount for lack of marketability (DLOM) in venture capital?

It applies to interests that are not readily marketable and is supported rather than assumed — restricted-stock and pre-IPO studies are the usual empirical basis, and the AICPA's valuation guidance sets out how such support is expected to be documented.

Why is Discount for lack of marketability (DLOM) important for startups?

Understanding Discount for lack of marketability (DLOM) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.T1-11 — Internal Revenue ServiceRevenue Ruling 59-60Internal Revenue Service(A discount for lack of marketability reduces value to reflect that an interest cannot be sold quickly at low cost.)primary · T1 · valuation · metric
  2. 2.T2-09 — AICPAAICPA Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as CompensationAICPA(A discount for lack of marketability reduces value to reflect that an interest cannot be sold quickly at low cost.)primary · T2 · valuation · metric

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