The commonly used post-money valuation figure employs a simplistic methodology, applying the most recent round’s share price to all outstanding shares to arrive at a valuation. This works for determining the market capitalization of a standard public company, which usually has a single class of common shares, but it does not account for the nuances generated by the inclusion of different share classes. Due to the complex equity structure of VC investments, we advocate for a more holistic view of valuation rather than relying solely on post-money valuation. This is a key consideration for founders/companies raising VC funding in order to have a well-rounded view of common share valuation, as well as for investors when forecasting likely exit scenarios.
We’ve selected a group of five VC deal terms that we believe have a substantial effect of preferred share valuation: liquidation preference, participation rights, anti-dilution provisions, automatic conversion and super-voting rights.