b'Annual Report & Accounts 2022 Mercia Asset Management PLC 870-6 months post last funding roundThe Group will apply the price of a recent investment for up to six months post the last funding round, subject to there being no material change to the investee companys prospects (which would include the prospects of drawing down the next tranche or raising the next round of funding). 7-18 months post last funding roundBeyond the six months point, the Group seeks assurance that the investee company is progressing against the development milestones which were set out in the initial assessment. Failing to hit milestones will not necessarily impact the valuationthis may simply be an indicator that incremental value will take longer to deliver, but the performance against milestones is assessed as an indicator of a potential change in value. The Group will be cautious about increasing the valuation of an early-stage investee company unless it is based on a new market price or maintainable revenues and/or earnings. 19+ months post last funding roundFrom this point onwards, the Group looks for additional support for the price of recent investment by calibrating back toFinancial statementsthat using a discounted cash flow (DCF) methodology. However, unless the investee company has become established with maintainable revenues and/or earnings and can be valued on an earnings basis, given the inherent risk in early-stage investing and the lack of reliability of using estimates yet to be delivered a number of years into the future, the Group is unlikely to increase the fair value, even if a DCF calculation suggests a higher value. Nevertheless, the DCF calculation helps support the proposed fair value at the valuation point.The current macroeconomic environment continues to generate sustained uncertainty over the fair value of the direct investment portfolio. The Directors believe that they have reflected this uncertainty in a balanced way through the assumptions used in the valuation of each investee company. The Directors have assessed the estimates made in relation to each individual valuation and do not consider that a reasonably possible change in estimate would result in a material change in the value of each investment.Valuation of deferred considerationThe fair value of the deferred consideration payable in respect of the acquisition of its VCT fund management business, which is contingent upon certain conditions being met, has been estimated with reference to the contractual obligations as at 31 March 2022. The conditions upon which payment of the deferred consideration is contingent are outlined below and included in note 22 to these consolidated financial statements. The first condition is that no termination notice is served by any of the three Northern VCT boards before the first, second or third anniversaries of completion. With no notice having been received as of the date of signing these financial statements, the first and second deferred consideration payments of 2,100,000 were paid in cash by the Group in December 2020 and December 2021. There have been no indications to date that notice will be given before the third anniversary.The second condition is that the Group receives at least 16,000,000 of fees in respect of the VCT fund management contracts (excluding performance fees) during the three years post completion. The third condition is that, during the same three-year period, the Northern VCTs collectively raise at least 60,000,000 in new capital. The fair value of the deferred consideration in respect of these conditions has been based on a weighted probability of outcomes over the remaining period discounted by 10%.The discount applied is reflective of the risk profile of the conditions being met and is considered a significant assumption. Should the discount rate be increased by 1%, the discounted value of the deferred consideration as at 31 March 2022 would reduce by 100,000.'