Valuation
What your company is worth on paper, how that number is calculated, and why it almost never means what you think it means.
Valuation is the number that represents what your company is supposedly worth at a given moment. It determines how much of your company you give away every time you raise money, how much you walk away with when you sell, and whether anyone calls you a “billionaire” in a headline. When a venture capitalist offers to invest $5 million at a $20 million valuation, that number is not a measurement of your revenue, your profits, or your assets. It is a negotiated price that reflects what one investor is willing to pay for a piece of your company on one particular day.
A Stanford Graduate School of Business study found that reported unicorn valuations (companies valued at $1 billion or more) are 48% higher on average than the fair value of the shares investors actually hold, and that nearly half of the 135 unicorns studied were not genuinely worth $1 billion once you accounted for the complex deal terms embedded in the investment contracts. Paper wealth, the kind that makes magazine covers and billionaire lists, is not the same as real wealth, and understanding the gap between the two is one of the most important things any founder can learn.
How It Works
Pre-money vs. post-money
Pre-money valuation is what your company is worth before an investor puts money in, and post-money valuation is what it is worth after. If an investor offers $5 million at a $20 million pre-money valuation, the post-money valuation is $25 million, and the investor now owns 20% of the company ($5 million divided by $25 million). If that same investor offered $5 million at a $20 million post-money valuation instead, they would own 25% ($5 million divided by $20 million), which means the founder gave away 5% more of the company on what sounds like the same deal.
How startups are valued
Most startup valuations are based on revenue multiples, which means taking a company’s annual revenue and multiplying it by a number that reflects how fast it is growing and how much investors want to be in that industry. A beauty brand growing 50% per year might be valued at 8 to 12 times its annual revenue, while a slow-growing consumer goods company might only command 2 to 4 times. At the earliest stages, before there is meaningful revenue, valuations are based almost entirely on comparable deals, team credentials, and how much demand exists for the round.
What happens to your ownership at each stage
Every time a company raises money, new shares are created and sold to investors, which dilutes the founders’ percentage of the total. A founder who starts with 100% ownership will typically give away 15 to 25% at a seed round, another 15 to 25% at Series A, and another 10 to 20% at Series B, with each round reducing her percentage of the overall pie even as the theoretical value of her remaining shares goes up. The critical question is not how much equity you gave away, but whether the valuation increased enough to make your smaller slice worth more than the larger slice you had before.
The Dilution Math
The difference between owning a company and owning a piece of one becomes starkly visible over the course of multiple funding rounds.
| Stage | Median Founding Team Ownership |
|---|---|
| After Seed | 56.2% |
| After Series A | 36.1% |
| After Series B | 23.0% |
By the time a company has raised three rounds of funding, the founding team typically owns less than a quarter of the business they started. That remaining 23% can still be worth hundreds of millions of dollars if the company reaches a high enough valuation, but it also means that 77% of the economic value flows to investors, employees with stock options, and other shareholders, and every subsequent round of funding dilutes the founders further.
Examples
The compounding bet
Skims demonstrates what a rising valuation looks like when the underlying business actually supports it. Kim Kardashian’s shapewear brand was valued at $1.6 billion in 2021, then $3.2 billion in 2022, then $4 billion in 2023, and most recently $5 billion in a 2025 round, with reports that the company is now profitable. The valuation doubled and then kept climbing because revenue grew to match, which is the difference between a valuation built on hype and one built on a business that actually works.
The gap between a headline and a balance sheet
Kylie Cosmetics was the most publicized valuation story in beauty when Forbes declared Kylie Jenner the youngest self-made billionaire in 2019. Coty acquired 51% of the brand for $600 million in 2020, implying a $1.2 billion valuation. Forbes later retracted the billionaire claim, reporting that the Jenner camp had provided documents overstating the brand’s revenue, and Coty subsequently wrote down the value of its Kylie investment, marking one of the most visible examples of the distance between a reported valuation and the actual financial performance underneath it.
Paper billions that evaporated
Bumble went public in February 2021 at a $7.7 billion valuation, making founder Whitney Wolfe Herd a billionaire on paper. The stock peaked at $76.49 within days of the IPO and then began a decline that has brought the company’s market cap to roughly $310 million, a 95% collapse from its all-time high. Wolfe Herd was technically a billionaire for about 10 months before her shares fell below the threshold, which is a useful illustration of why equity in a publicly traded company is only worth what someone will pay for it on the day you sell.
The Honest Company followed a similar trajectory, reaching a $1.7 billion private valuation before going public at $1.44 billion in May 2021, then declining to roughly $307 million. Jessica Alba’s personal stake, once valued in the hundreds of millions, shrank along with it.
The billion-dollar question mark
Glossier reached a $1.8 billion valuation after its Series D round in 2019 and was widely considered one of the defining DTC success stories in beauty. After leadership turnover and stalling growth, the company began seeking fresh capital in 2024 at a valuation reported to be “south of a billion,” which means investors now considered the company worth less than half of what the previous round implied. A lower valuation in a subsequent round is called a down round, and it triggers anti-dilution protections that can dramatically reduce a founder’s ownership.
What full ownership is worth
Spanx operated for 21 years as a bootstrapped company before Sara Blakely sold a majority stake to Blackstone at a $1.2 billion valuation in 2021. Because she had never taken outside investment, Blakely owned 100% of the company at the time of the deal, which meant she did not have to split the proceeds with a single venture capitalist or angel investor. Compare that with a founder who raises three rounds of funding and owns 23% of a company at the same valuation: the VC-backed founder’s stake would be worth $276 million before taxes, while Blakely walked away with roughly $900 million after selling her majority share.
What an acquisition actually pays
Drunk Elephant sold to Shiseido for $845 million in 2019, and founder Tiffany Masterson retained a meaningful ownership stake at the time of sale because the company had raised relatively little outside capital. IT Cosmetics sold to L’Oreal for $1.2 billion in 2016, and founder Jamie Kern Lima received approximately $410 million after taxes, a figure that reflects both her diluted ownership percentage and the tax obligations that come with a sale of that size. Charlotte Tilbury sold a majority stake to Puig at a valuation of approximately £1.3 billion in 2020, with Puig later acquiring the remaining shares. In each case, the headline valuation and the amount the founder actually received were very different numbers.
What People Get Wrong
“A high valuation means the company is successful.” The Honest Company was valued at $1.7 billion as a private company and is now worth roughly $307 million on the public market, an 82% decline from its peak private valuation. A high valuation means one investor, at one moment in time, was willing to pay that price for a slice of the company. It does not mean the company is profitable, growing, or even solvent.
“A billion-dollar valuation means the founder has a billion dollars.” A founder who owns 20% of a company valued at $1 billion has a stake worth $200 million on paper, but that paper value shrinks further after liquidation preferences (which let investors get paid before the founder in a sale), taxes on the eventual payout, and any restrictions on when and how she can sell her shares. The gap between a valuation headline and what a founder can actually deposit in a bank account is almost always enormous.
“You should always raise at the highest valuation possible.” A sky-high valuation in one round creates pressure to grow into that number by the next round, and if the company cannot hit the revenue targets that would support an even higher valuation, the next raise becomes a down round. Down rounds trigger anti-dilution clauses that issue additional shares to previous investors at the founder’s expense, meaning a down round does not merely reduce the valuation on paper but actively takes equity away from the founding team. Glossier’s $1.8 billion valuation in 2019 became a ceiling the company could not surpass, and reports of a sub-billion raise illustrate exactly how a valuation that was too high for the business can constrain a founder’s options years later.
Frequently Asked Questions
What is the difference between pre-money and post-money valuation?
Pre-money valuation is what a company is worth before new investment money comes in, and post-money valuation is the pre-money plus the amount invested. If a company has a $10 million pre-money valuation and raises $2 million, the post-money valuation is $12 million, and the investor owns 16.7% ($2 million divided by $12 million). The distinction matters because the same dollar figure can mean very different ownership percentages depending on whether it refers to pre-money or post-money.
How is a startup valued?
The most common method is revenue multiples: taking the company’s annual or projected revenue and multiplying it by a factor determined by growth rate, industry, and market conditions. For pre-revenue companies, valuations are based on comparable recent deals in the same sector, the founders’ track record, and investor demand. Later-stage companies may be valued using EBITDA multiples (earnings before interest, taxes, depreciation, and amortization) or discounted cash flow analysis.
What is a good valuation for a startup?
Median pre-money valuations by stage as of recent data are approximately $7.7 million at pre-seed, $16 million at seed, $49.3 million at Series A, and $118.9 million at Series B. These numbers vary significantly by industry, geography, and market conditions, and a “good” valuation for a founder is one that raises the capital needed without giving away so much equity that the founders lose meaningful ownership or set unrealistic expectations for the next round.
How much equity do founders give up per round?
Founders typically give up 15 to 25% at seed, 15 to 25% at Series A, and 10 to 20% at Series B. Median founding team ownership drops from 100% at incorporation to 56.2% after seed, 36.1% after Series A, and 23% after Series B, according to Carta data. Employee option pools, which typically represent 10 to 20% of the company, further dilute founder ownership between rounds.
What is a 409A valuation?
A 409A valuation is an independent appraisal of a private company’s common stock, required by the IRS under Section 409A of the Internal Revenue Code. Companies need a 409A valuation to set the exercise price for employee stock options, and the 409A value is almost always lower than the preferred stock valuation that appears in funding headlines, often 25 to 50% lower, because common stock lacks the liquidation preferences and other protections that preferred shares carry.
How much do beauty brands sell for?
Beauty M&A transactions have averaged approximately 14.9 times EBITDA in recent years, though premium brands with strong growth can command significantly more. Drunk Elephant sold for $845 million, IT Cosmetics for $1.2 billion, Charlotte Tilbury for approximately £1.3 billion, and Sol de Janeiro for $1.5 billion. Revenue multiples for beauty brands typically range from 3 to 8 times revenue, with high-growth DTC brands occasionally commanding 10 to 15 times.
What are typical revenue multiples by industry?
Revenue multiples vary widely by sector. SaaS (software as a service) companies trade at 5 to 15 times revenue, e-commerce and DTC brands at 1 to 4 times, beauty and personal care at 3 to 8 times, food and beverage at 1 to 3 times, and high-growth technology companies at 10 to 30 times or more. According to NYU Stern data compiled by Aswath Damodaran, the median enterprise value to sales ratio across all US industries is roughly 2.2 times, meaning most businesses are worth about two years of revenue.
How much is my business worth?
For most small and mid-size businesses, the simplest starting point is a multiple of seller’s discretionary earnings (SDE), which is net profit plus the owner’s salary and any personal expenses run through the business. Small online businesses typically sell for 2 to 4 times annual SDE, while larger, more established businesses may sell for 4 to 8 times. A business generating $200,000 in SDE would likely be valued between $400,000 and $800,000 if sold through a broker, though the actual price depends on growth trajectory, customer concentration, and how dependent the business is on the owner.
What is dilution?
Dilution is the reduction in a shareholder’s ownership percentage that occurs when a company issues new shares, typically during a funding round. If a founder owns 100 of 100 outstanding shares (100% ownership) and the company issues 25 new shares to an investor, the founder now owns 100 of 125 shares (80%), even though her number of shares has not changed. Dilution does not necessarily mean the founder lost value: if the new shares were sold at a price that increased the company’s total valuation enough, 80% of the larger company can be worth more than 100% of the smaller one.
What is the gender valuation gap?
Women-founded startups received only 2.3% of total venture capital funding in 2024, despite research showing that women-led companies generate 10% more cumulative revenue over a five-year period than male-led companies and deliver 35% higher return on investment. The gap extends to valuations: women-led startups receive lower valuations at every stage compared to male-led counterparts, even when controlling for industry, revenue, and growth rate. The median seed valuation for women-led companies is roughly 30% lower than for comparable male-led companies, a gap that compounds through every subsequent round as lower early valuations lead to more dilution, smaller raises, and less capital to grow.
Sources
- Stanford Graduate School of Business, “Squaring Venture Capital Valuations with Reality,” Gornall and Strebulaev, 2020. Unicorn overvaluation study finding 48% average inflation.
- Carta, “Founder Ownership Report,” 2025. Median founding team ownership at each funding stage.
- PitchBook-NVCA Venture Monitor, Q4 2024. Median pre-money valuations by stage.
- Damodaran Online, NYU Stern, “Revenue Multiples by Sector,” 2025. Enterprise value to revenue ratios across US industries.
- Capstone Partners, “Beauty Market Report,” 2025. Beauty M&A valuation multiples and transaction data.
- Founders Forum Group, “Women in VC & Startup Funding: Statistics & Trends,” 2025. Women receiving 2.3% of VC funding and comparative return data.
- Forbes, “Inside Kylie Jenner’s Web of Lies,” 2020. Retraction of Jenner billionaire claim and revenue overstatement.
- Boston Consulting Group, “Why Women-Owned Startups Are a Better Bet,” 2018. Women-led companies generating higher revenue and ROI per dollar invested.