Innventure, Inc.INV
Innventure, Inc. Fair Value Disclosure
Note 4. Fair Value
Fair Value Hierarchy
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):
| December 31, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment in debt security - AFS | $ | — | $ | — | $ | 9,246 | $ | 9,246 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Earnout liability | $ | — | $ | — | $ | 3,890 | $ | 3,890 | |||||||||||||||
| 2024 WTI Warrant liability | — | — | 13,080 | 13,080 | |||||||||||||||||||
| 2025 WTI Warrant liability | — | — | 3,230 | 3,230 | |||||||||||||||||||
| Private placement warrant liability | — | 11,148 | — | 11,148 | |||||||||||||||||||
| December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment in debt security - AFS | $ | — | $ | — | $ | 11,187 | $ | 11,187 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Earnout liability | $ | — | $ | — | $ | 14,752 | $ | 14,752 | |||||||||||||||
| 2024 WTI Warrant liability | — | — | 17,230 | 17,230 | |||||||||||||||||||
| Private placement warrant liability | — | 16,793 | — | 16,793 | |||||||||||||||||||
Gains and losses for such assets and liabilities categorized within the Level 3 table set forth may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
Changes in the estimated fair value of Level 3 financial assets and liabilities that are measured on a recurring basis are as follows (in thousands):
| Forward Contract | Embedded derivative liability - convertible promissory notes | Embedded derivative liability - August 2025 Notes | Investment in debt securities - AFS | Earnout liability | 2024 WTI Warrant liability | 2025 WTI Warrant liability | Embedded derivative liability (asset) - Convertible Debentures | |||||||||||||||||||
Balance as of January 1, 2024 (Predecessor) | $ | — | $ | 1,994 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Additions | — | — | — | 10,110 | — | — | — | — | ||||||||||||||||||
| Settlement | — | (2,472) | — | — | — | — | — | — | ||||||||||||||||||
| — | 478 | — | 62 | — | — | — | — | |||||||||||||||||||
Balance as of October 1, 2024 (Predecessor) | $ | — | $ | — | $ | — | $ | 10,172 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Balance as of October 2, 2024 Successor) | — | — | — | 10,172 | 11,352 | — | — | — | ||||||||||||||||||
| Additions | 54 | — | — | 106 | — | 15,690 | — | — | ||||||||||||||||||
| Settlement | (99) | — | — | — | — | — | — | — | ||||||||||||||||||
| Change in fair value | 45 | — | — | 909 | 3,400 | 1,540 | — | — | ||||||||||||||||||
Balance as of December 31, 2024 (Successor) | $ | — | $ | — | $ | — | $ | 11,187 | $ | 14,752 | $ | 17,230 | $ | — | $ | — | ||||||||||
| Balance as of January 1, 2025 (Successor) | $ | — | $ | — | $ | — | $ | 11,187 | $ | 14,752 | $ | 17,230 | $ | — | $ | — | ||||||||||
| Additions | — | — | — | 7,477 | — | — | 3,090 | 1,476 | ||||||||||||||||||
| Settlement and derecognitions | — | — | (1,677) | (8,756) | (873) | — | — | (3,297) | ||||||||||||||||||
| Change in fair value | — | — | 1,677 | (662) | (9,989) | (4,150) | 140 | 1,821 | ||||||||||||||||||
| Balance as of December 31, 2025 (Successor) | $ | — | $ | — | $ | — | $ | 9,246 | $ | 3,890 | $ | 13,080 | $ | 3,230 | $ | — | ||||||||||
There were no transfers in or out of levels during the Successor period for the year ended December 31, 2025, the Successor period from October 2, 2024 through December 31, 2024, or the Predecessor period from January 1, 2024 through October 1, 2024.
Standby Equity Purchase Agreement
On October 24, 2023, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with Yorkville (as defined below), as further described in Note 13. Stockholders' Equity with applicable terms defined. The SEPA became effective concurrently with the Business Combination. The SEPA includes two components subject to fair value
measurement: the Purchased Put Option and Forward Contract. These are considered freestanding financial instruments not indexed to the Company’s stock.
The Purchased Put Option is accounted for as a derivative asset, initially measured at fair value upon Closing and subsequently measured at fair value each reporting period with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss). The Purchased Put Option fair value is considered de minimis upon Closing due to the exercise price being at a discount to market prices and remains nominal as of December 31, 2025 and 2024.
The Forward Contract is initially measured at fair value upon any Advance Notice (as defined below) and subsequently remeasured with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss). A derivative liability or asset will be recorded when there is an Advance Notice outstanding as of a reporting period. There were no outstanding Advance Notices as of December 31, 2025 and 2024.
Investment in debt securities - AFS
The investment in debt securities is stated at fair value as described in Note 3. Investments. The terms of the securities are such that they are highly likely to convert into Class D Units of AeroFlexx. The fair value of the debt securities is estimated on an as-converted basis using a discounted cash flow model by discounting the contractual debt cash flows at a rate incorporating the credit risk of AeroFlexx as of December 31, 2025 and using a Black-Scholes model as of December 31, 2024 incorporating breakpoints upon which each tranche of AeroFlexx equity participates in distributions.
| December 31, 2025 | December 31, 2024 | ||||||||||
| Volatility | n/a | 120 | % | ||||||||
| Time to liquidity | n/a | 2 years | |||||||||
| Discount for lack of marketability | n/a | 31.00 | % | ||||||||
| Weighted average cost of capital | n/a | 45.00 | % | ||||||||
| Risk-free rate | n/a | 4.23 | % | ||||||||
| AeroFlexx yield | 17.01 | % | |||||||||
As further discussed in Note 3. Investments, outstanding principal and accrued interest of $7.3 million for the investment in debt securities - AFS was automatically converted into Class D Units in accordance with the loan agreement. Prior to the conversion, the fair value was estimated using a Black Scholes model. Post conversion, the fair value is estimated using a discounted cash flow model by discounting the contractual debt cash flows at a rate incorporating the credit risk of AeroFlexx.
Earnout Shares
Upon Closing of the Business Combination, Earnout Shares were issued to previous Innventure Members and contingently issued to Sponsors (as defined and further described in Note 10. Earnout Shares). The fair value of the Earnout Shares was determined using a Monte Carlo valuation model that utilizes significant assumptions, including expected volatility, expected term, and risk-free rate, to determine the probability of achieving common share price and revenue milestones. The shares may vest upon either the achievement of the common share price milestone or revenue or event-based milestones specific to each of three tranches. Specifically, the future stock price of the Company and revenues of Accelsius and AeroFlexx are simulated assuming a Geometric Brownian Motion (GBM) in a risk-neutral framework. The Earnout Share payoff is calculated based on the contractual terms, and then discounted at the term-matched risk-free rate. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the Earnout Shares. Discounting conventions of revenue-based milestones are mid-period assuming annual revenue forecasts are earned on average at the mid-period of the forecast period. The value of the Earnout Shares is calculated as the average present value over all future modeled payoffs.
The inputs used in simulating the Company’s stock price include, the term, stock price, volatility, risk-free rate and dividend yield. Prior to the Business Combination, the Company never paid or declared dividends, thus the dividend yield is based on our history and expectation of dividend payouts and is estimated to be 0% as of December 31, 2025 and 2024. The following table summarizes the inputs used in simulating the Company’s stock price for purposes of valuing the Earnout Shares:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Term | 5.8 years | 6.8 years | |||||||||
| Stock price | $ | 4.18 | $ | 13.85 | |||||||
| Volatility | 60.00 | % | 56.00 | % | |||||||
| Risk-free rate | 3.77 | % | 4.42 | % | |||||||
| Revenue risk premium | 27.80 | % | 36.10 | % | |||||||
Revenue volatility | 157.30 | % | 176.00 | % | |||||||
The Earnout Shares related to Milestone Three are liability classified, and the Earnout Shares related to Milestone One and Two are equity classified as further described in Note 10. Earnout Shares. The assumptions used in measuring fair value of Milestone Three Earnout Shares are considered Level 3 inputs, which include weighted average cost of capital risk premium, operational leverage ratio, revenue risk premium and revenue volatility.
For further information on the Earnout Shares, refer to Note 10. Earnout Shares.
Warrants
In October 2024, The Company issued freestanding warrants (the “2024 WTI Warrants”) to the WTI Lenders in connection with the WTI Facility (as defined and further described in Note 5. Borrowings and Note 11. Warrants). The fair value measurement of 2024 WTI Warrants is based on unobservable inputs (Level 3 fair value measurement).
The fair value of the 2024 WTI Warrants was determined using a Monte Carlo valuation model in which the future stock price is simulated assuming a GBM in a risk-neutral framework. The model utilizes significant assumptions including stock price, stock price volatility, and credit spread. The credit spread relates to estimated counterparty credit risk of Innventure being able to make payments related to the WTI Lenders’ put right, in which the 2024 WTI Lenders may exchange the WTI Warrants for a total cash payment of $15.0 million after the four-year anniversary of issuance. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve.
In April 2025, the Company issued freestanding warrants (the 2025 “WTI Warrants”) to the WTI Lenders in connection with the WTI Facility (as defined and further described in Note 5. Borrowings and Note 11. Warrants). The fair value measurement of 2025 WTI Warrants is based on unobservable inputs (Level 3 fair value measurement).
The initial fair value of the 2025 WTI Warrants was determined using a Monte Carlo valuation model in which the future stock price is simulated assuming a GBM in a risk-neutral framework. The model utilizes significant assumptions including stock price, stock price volatility and credit spread. Specifically, the initial valuation as of the April 14, 2025 issuance date considered a stock price of $3.65, stock price volatility of 57.00%, and credit spread of 27.70%. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve. The following table summarizes the inputs used in the GBM for purposes of valuing the WTI Warrants as of each year end:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||
| 2025 WTI Warrants: | |||||||||||||||||
| Geometric Brownian Motion | Stock price | $ | 4.18 | N/A | |||||||||||||
| Stock price volatility | 60.00 | % | N/A | ||||||||||||||
| Credit spread | 26.00 | % | N/A | ||||||||||||||
| 2024 WTI Warrants: | |||||||||||||||||
| Geometric Brownian Motion | Stock price | $ | 4.18 | $ | 13.85 | ||||||||||||
| Stock price volatility | 60.00 | % | 56.00 | % | |||||||||||||
| Credit spread | 26.00 | % | 18.80 | % | |||||||||||||
Significant increases or decreases to any of these inputs would result in a significantly higher or lower liability. For further information on the 2024 WTI Warrants (as defined below), and 2025 WTI Warrants, refer to Note 11. Warrants.
Derivative Liabilities
Embedded derivative liabilities contained within the previously issued 8% convertible promissory notes (the “2025 Notes”) were stated at fair value. Fair value was determined utilizing discounted cash flows, using unobservable market data inputs, and an option pricing model based on a probability-weighted expected outcome with respect to a financing or a change of control. The derivatives associated with the 2025 Notes were settled in March 2024 due to conversion of the 2025 Notes in a qualified financing. A summary of the significant unobservable inputs utilized to estimate the fair value at settlement is as follows:
Embedded derivative within 2025 Notes issued August 18, 2022 with a principal balance of $4,000 | Settlement | ||||
| Discount Rate | 35 | % | |||
| Probability of Expected Outcomes | |||||
| Financing | 100 | % | |||
| Change in control | — | % | |||
| Other | — | % | |||
Embedded derivative within 2025 Notes issued June 7 & July 3, 2023 with an aggregate principal balance of 2,000 | |||||
| Discount Rate | 71% - 87% | ||||
| Probability of Expected Outcomes | |||||
| Financing | 100 | % | |||
| Change in control | — | % | |||
| Other | — | % | |||
As further discussed and defined in Note 5. Borrowings, the Company issued Convertible Debentures (as defined below) which contain certain features which qualify as embedded derivates requiring bifurcation. The fair value of the embedded derivative is determined utilizing a “with and without” method, in which the fair value is calculated as the difference in the fair value of the entire hybrid instrument and the fair value of the instrument excluding the bifurcated derivative features. The initial fair value of the embedded derivative was determined using a discounted cash flow model as of April 14, 2025 and May 15, 2025 which is reflective of the dates of the Convertible Debenture issuances. The model uses a significant assumption of a debt yield of 44.5% for the April 14, 2025 issuance and 42.6% for the May 15, 2025 issuance.
| September 30, 2025 | |||||||||||
Embedded derivative asset - Convertible Debentures: | |||||||||||
| Binomial Lattice Model | Stock price | $ | 5.79 | ||||||||
| Stock price volatility | 60.00 | % | |||||||||
| Debt yield | 38.70 | % | |||||||||
| Debt spread | 35.00 | % | |||||||||
At the time of issuance of the August 2025 Notes (defined below), the related embedded derivative liability had a de minimis fair value. On September 30, 2025, the Company recognized $1,677 for the embedded derivative liability related to the contingent exchange feature. The fair value was determined using a Black-Scholes valuation model, utilizing inputs related to the risk-free rate, volatility, time to liquidity, and the Accelsius Series B-1 issuance price. Specifically, the September 30, 2025 valuation considered a risk-free rate of 3.66%, volatility of 70.00%, time to liquidity of 4.25 years, and an Accelsius Series B-1 unit issuance price of $36.49. The derivative associated with the August 2025 notes were settled in October 2025 due to the conversion of the August 2025 Notes in a qualified financing.
Other
Our financial instruments that are not re-measured at fair value include prepaid expenses and other current assets, due from related parties, other assets, accounts payable, accrued expenses, accrued employee benefits, other current liabilities and other liabilities as the carrying amounts approximate fair value due to the short maturity terms of these instruments.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 30, 2026 | Showing above |
| 2024 | Apr 14, 2025 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.