Valuation and returns
VC method valuation calculator
Venture investors work backwards: what could this company sell for, what multiple do we need, and what can we pay today to get it?
A screening tool, not a fair value. Investors apply it with probability-weighted exits and their own fund return targets.
How it works
The VC method starts with a plausible exit value, then divides by the return multiple the investor needs. Because later rounds will dilute today's investor, the exit value is reduced by expected dilution first.
Target multiples are high, often 10x or more at seed, because most venture investments fail and the winners must return the fund.
The formula
- Value at exit for today's investorsExit value x (1 - later dilution).
- Post-money todayThat value / target multiple.
- Pre-money and ownershipPre-money = post-money - investment; ownership = investment / post-money.
Worked example
A $200 million exit, 40% later dilution and a 10x target give a post-money of $12 million today. For a $2 million investment, the pre-money is $10 million and the investor needs about 16.7%. A 10x over seven years is about 39% a year.
Put the numbers in your data room
The exit case rests on your market size and comparables. Put the market analysis and comparable transactions in the data room so investors can test the exit value themselves.
VC method valuation calculator FAQ
Why are VC target multiples so high?
Most startups return little or nothing, so the successful ones must return many times the money to make the fund work.
What dilution should I assume?
Seed companies often see 40% to 60% further dilution before exit; later-stage companies less.
Is the VC method used for late-stage deals?
Less so; revenue multiples and comparables dominate later.