Technology investments valuation: arithmetic, classes, rules

A private company's valuation is not measured. It is derived. Two people agree how much money will go in and what proportion of the company that buys, and the valuation is what falls out of the arithmetic afterward. Then it gets reported as though somebody had weighed the business.

This page explains how that number is produced, why it describes so much less than it appears to, and which filings and accounting rules decide what becomes public. It leaves out deal multiples and benchmarks, because those are set in private negotiations and any number written here would be an invention.

What to take away

The arithmetic, in the order it actually happens

Step six is the least visible and the most consequential. A pool created before the investment comes out of the founders' side; created afterward, it dilutes everybody. The headline number is identical either way.

Two classes, one price

Almost every venture-backed company has at least two classes of share. Investors take preferred stock, which carries rights that ordinary shares do not: priority on a liquidation, and often conversion terms that let the holder choose the better outcome. Founders and employees hold common stock, which carries the votes and the residual.

The SEC's plain-language investor material on stocks sets out the general difference: preferred holders come first when a company's assets are distributed, and common holders come last.

That single fact breaks the headline number. The round priced the preferred, which comes with downside protection. The common shares have no such protection, and are worth less per share on the same day. Multiplying the preferred price by every share in the company produces a figure that nobody could realize.

What the number therefore does not tell you

The technology investments page covers what "invested" means before any arithmetic starts.

The celebrity brands valuation page makes the parallel case for a name, not a company: three parties can hold three defensible values at once.

Why the headline is negotiated upward

Both sides often prefer a high number, for different reasons. Founders take less dilution for the same money. Investors get a marketable number for their own reporting and their next fundraise. The way both are satisfied is by attaching terms to the preferred that protect the investor if things go badly, which costs nothing today and everything at exit.

A high valuation with heavy protective terms can be worse for a founder than a lower valuation with clean ones. Nothing in the reported figure distinguishes them, and that mechanism drives most surprise when these companies are finally sold.

The acquisitions and exits page follows the proceeds at that point.

Applied to two celebrity technology stakes

Ryan Reynolds and Mint Mobile. Mint was founded in 2015 as Mint SIM, a subsidiary of Ultra Mobile, by David Glickman and Rizwan Kassim. When its spin-off from Ultra Mobile was completed in November 2019, Reynolds acquired an ownership stake. In May 2024 T-Mobile US acquired Mint Mobile for cash and stock; Reynolds received a payment for his interest and remains in a creative role. Two features of that exit are the arithmetic problems described above. A price paid partly in the buyer's stock has no single value, because the stock leg moves with the buyer's share price. And a payment for one holder's interest is not a valuation of the company unless the terms attached to every class of interest are known.

Ashton Kutcher's funds. Kutcher co-founded the venture capital firm A-Grade Investments with Guy Oseary, Ron Burkle and fund manager Chris Hollod, initially with the founders' own money in 2010; at SXSW on March 14, 2015 he announced Sound Ventures as its successor, managing a fund backed by institutional funding. By August 2017 he was recorded as having invested in startups including Duolingo, ResearchGate and Lemonade. Any figure published for the value of holdings like these is an estimate made by someone outside the deals, resting on round prices for one class of stock. By the logic of this page, attribute it, date it, and do not treat it as a price.

Where a round leaves a public trace

Two sets of rules decide what the outside world ever sees of a private round.

The first is the Form D notice. Form D is used to file a notice of an exempt offering of securities with the SEC, and companies that sold securities without registration in an offering under Rule 504 or 506 of Regulation D must file it within 15 days after the first sale of securities in the offering. The date of first sale is the date on which the first investor is irrevocably contractually committed to invest. The notice is filed online through the SEC's EDGAR system, which is where a researcher looks for it.

The second applies to the funds that hold these stakes afterward. Because private holdings lack quoted prices, their fair value typically rests on significant unobservable inputs and is categorized as Level 3 under FASB ASC Topic 820. When a later measurement relies on unobservable inputs, Topic 820 requires the valuation technique to be calibrated so that, at initial recognition, its result equals the transaction price. The round price is therefore the anchor every later model has to start from, and recurring Level 3 measurements must disclose quantitative information about the significant unobservable inputs used.

Neither rule publishes the negotiated terms. Form D records that an exempt offering happened and when; the fair value rules shape how a holder reports its stake. The preference terms that decide who is paid first stay in documents nobody outside has read.

What can honestly be said about a private valuation

That short list is all the record supports. The portfolio case studies page lays out the full evidence ladder; valuations sit near its bottom rung.

Where an investment was made through a vehicle rather than directly, the technology investments portfolio page explains why even the buyer's identity is often not visible.

Common questions

Is a higher valuation always better for the founder?

No. It reduces dilution now and can transfer a large share of the eventual proceeds to investors through the terms attached. Read the terms before celebrating the number.

Why do valuations fall so sharply in a bad round?

Because there was never a market price to fall from. The earlier figure was one negotiation's output, and a later negotiation in worse conditions produces a different one.

Can a company be worth more than the last round implied?

Certainly, and it can be worth far less. The round figure is a stale artifact of one transaction, not a running measurement.

What is the honest thing to write when a valuation is announced?

That a company raised an amount from named or unnamed investors, and that the figure implied by the round is what it is. Say implied, and say by whom.