How to Read a Private Company Valuation: A Framework for Wholesale Investors

A private company does not have one valuation. It has several, and they measure different things. The headline figure in a funding announcement is the post-money valuation, calculated from the price of the most recent funding round. Beneath it sit other numbers: the 409A valuation used to price employee options, the secondary market price at which shares actually change hands, and the fair value an analyst would reach by studying the underlying business. Reading a private company valuation means knowing which of these numbers you are looking at, what it includes, and what it leaves out.

The distinction matters because the headline number is the one most likely to be quoted and the one least likely to reflect what a given share is actually worth. A company can carry a US$50 billion post-money valuation, a common-share value less than half that, and a secondary market price different from both, all at the same moment, all correct. Each measures something different. For a wholesale investor deciding whether to commit capital to a private company, understanding the gap between these numbers is the difference between an informed decision and an expensive assumption.

This article breaks down the numbers you will encounter, explains what each one is really telling you, and sets out a practical framework for reading any private company valuation you are handed.

Why a private company has more than one valuation

Public companies are simple to value in one respect: they have a single class of common stock, a live market price, and a market capitalisation that is just the price multiplied by the shares outstanding. Every share is worth the same, and the price updates every second the market is open.

Private companies work differently. They raise money in rounds, roughly every 12 to 24 months, and each round typically creates a new class of preferred shares with its own rights. A company that has raised a seed round, a Series A, a Series B, and a Series C has at least four classes of preferred shares plus common stock, and each class can carry different economic terms. Later investors almost always receive better protections than earlier ones, because they are writing larger cheques at higher prices and want downside cover in exchange.

The result is a capital structure where shares are not interchangeable. A Series C preferred share with a liquidation preference and a guaranteed minimum return is worth more than a common share with neither, even though both represent an equal fractional claim on the company in an upside scenario. Any single "valuation" of the company has to make an assumption about how to treat these unequal shares, and the assumption it makes is what separates one valuation number from another.

The post-money valuation: the headline that overstates

The post-money valuation is the number you see in the press. It is calculated by taking the price per share paid in the most recent funding round and multiplying it by the total number of shares outstanding, including all the earlier classes and common stock.

The calculation embeds a large and rarely stated assumption: that every share in the company is worth the price paid for the most recent, most protected preferred shares. It is not. The latest investors bought shares with liquidation preferences, veto rights, and sometimes guaranteed returns that none of the earlier shares or the common stock carry. Pricing every share as if it enjoyed those same protections inflates the total.

The most rigorous work on this comes from Will Gornall and Ilya Strebulaev at Stanford, whose study Squaring Venture Capital Valuations with Reality valued 135 US unicorns using the actual financial terms in their legal filings. They found that reported post-money valuations averaged 48% above fair value, with 14 companies valued at more than double their fair worth. Common shares, which lack all the protections that preferred shares carry, were on average 56% overvalued. After adjusting for the value-inflating terms buried in the share classes, roughly half of the 135 companies studied did not actually clear the US$1 billion mark that had earned them unicorn status.

The study's example of Square is instructive. After its Series E round, Square's post-money valuation implied a company worth US$6 billion. Gornall and Strebulaev's model, which accounted for the specific protections attached to the Series E shares, put the fair value at US$2.2 billion. The headline overstated the company by 171%, not because anyone lied, but because the post-money calculation treats a single privileged share price as though it applied to every share in the business.

The size of the gap depends entirely on the terms. The ten least overvalued companies in the study were overstated by an average of only 13%, while the ten most overvalued averaged 145%. Uber, whose late investors took relatively few extra rights over common shareholders, was overvalued by just 12%. The lesson is that the distortion is not uniform. A headline valuation might be close to fair or wildly inflated, and the only way to know is to look at the protections attached to the most recent shares.

The practical lesson is that the post-money valuation is a useful reference for the scale and trajectory of a company, and a poor guide to what any specific share is worth. It tells you what the most recent investors paid for the most protected shares. It does not tell you what your shares, which are almost certainly less protected, are worth.

The 409A valuation: the number built to be conservative

The 409A valuation is the counterweight to the post-money figure, and it usually sits far below it.

A 409A valuation is an independent appraisal of the fair market value of a company's common stock, required under section 409A of the US Internal Revenue Code so that companies can set the strike price on employee stock options correctly. It is performed by a qualified third-party appraiser, must be refreshed every 12 months or after any material event such as a new funding round, and exists specifically to value the common stock rather than the preferred.

Because it values common stock, and because it is designed to withstand tax scrutiny rather than to market the company, the 409A number is deliberately conservative. It applies a discount for lack of marketability, typically in the range of 20% to 40%, to reflect that private shares cannot be easily sold, and it strips out the preferences that make preferred shares more valuable than common. The result is a common-share value that commonly runs 25% to 60% below the preferred price from the most recent round, with the gap widest at early stages and narrowest as a company approaches an IPO and its exit value becomes clearer.

To make it concrete, a company can raise a Series A at a US$50 million post-money valuation and simultaneously carry a 409A common-stock value of around US$5 million, and both numbers are correct. One is the price sophisticated investors paid for protected preferred shares in a negotiated round. The other is an independent appraiser's view of what an ordinary common share is worth today, after discounts. They are measuring different securities.

The 409A is not the number you should use to value your position either, because it is built to be low for tax-compliance reasons. But it is a useful floor. When the gap between a company's post-money valuation and its 409A common value is very wide, that gap is telling you how much of the headline number rests on the protections attached to preferred shares rather than on the raw value of the equity.

The secondary price: what shares actually change hands for

The third number is the one that most closely resembles a real price: the level at which shares actually trade in the secondary market between a willing buyer and a willing seller.

Secondary transactions happen when existing shareholders, usually employees or early investors, sell their shares to new buyers before the company lists. Platforms and structured vehicles facilitate these trades, and the price they clear at is a genuine market-clearing price rather than a calculated or appraised one. For that reason, the secondary price is often the most useful reference for what you would actually pay to take a position today.

The secondary price can sit above or below the post-money valuation, and the direction tells you something. For companies in high demand, where far more investors want shares than there are sellers, secondary prices can trade at a premium to the last round. SpaceX, OpenAI, and Anthropic have all traded on secondary markets at levels well above their last primary rounds in periods of intense demand. In weaker markets, or for companies whose prospects have dimmed since their last raise, secondaries trade at a discount, sometimes a steep one, as sellers accept less than the headline valuation to achieve liquidity.

One caution applies. Secondary transactions are often for common stock or a specific share class, so a secondary price is only comparable to the post-money valuation once you know which class traded. A secondary price for common shares sitting 30% below the post-money valuation is not necessarily a bargain. It may simply reflect the same preferred-versus-common gap that the 409A valuation captures. Knowing which security traded is essential before drawing any conclusion from the price.

The fundamentals: the check that anchors the others

None of the three numbers above says anything about whether the business justifies its price. For that, an investor has to look at the underlying company: its revenue, its growth rate, its margins, and how those compare to similar businesses.

The most common tool is the revenue multiple, which divides the valuation by the company's annual revenue or annual recurring revenue. A company valued at US$10 billion on US$500 million of revenue trades at 20 times revenue. Whether that is reasonable depends entirely on the comparison set. Fast-growing software companies with high margins command higher multiples than slower or more capital-intensive businesses. Comparing a private company's implied multiple to the multiples of comparable public companies, and to the multiples paid in recent private rounds for similar businesses, is the sanity check that keeps the other three numbers honest.

This is where a headline valuation either holds up or starts to look stretched. A company can carry an impressive post-money number, but if that number implies a revenue multiple far above what any comparable business trades at, the valuation is resting on growth expectations that may or may not materialise. The fundamentals do not replace the other numbers. They tell you whether the price any of them implies is defensible against the actual business underneath.

A framework for reading any private valuation

When you are handed a private company valuation, the following questions turn a single number into a useful picture. They are worth working through in order.

Which number is this? Establish whether you are looking at a post-money valuation, a 409A common value, a secondary price, or an analyst's fair-value estimate. Each means something different, and conflating them is the single most common valuation mistake.

Which share class am I actually buying? A valuation attached to senior preferred shares tells you little about the worth of common shares or a junior class. Identify the class your investment would hold and where it sits in the capital structure.

What protections do the senior shares carry? Liquidation preferences, participation rights, and guaranteed returns all transfer value from junior holders to senior ones in a downside scenario. The more protection the senior shares carry, the more the headline post-money valuation overstates what your shares are worth if the company sells for less than expected.

How stale is the number? A post-money valuation is a snapshot from the date of the last round, which may be 18 months old. A great deal can change in that time. The more time has passed, the less the headline number reflects the company today.

What does the revenue multiple look like against comparables? Divide the valuation by revenue and compare the result to similar public and private companies. A multiple far above the comparison set is a signal that the valuation rests heavily on future growth.

What did the last secondary actually trade at, and in which class? A recent secondary price for the relevant share class is the closest thing to a real market price you will find, and it often tells you more than the post-money headline.

Working through these questions will not give you a single "true" valuation, because no such number exists for a private company. It will give you something more useful: a clear view of what you would be paying, what you would be holding, and how much of the headline rests on assumptions rather than on the business.

What this means for SPV investors

For Australian wholesale investors accessing private companies through Special Purpose Vehicle structures, this framework has a specific application. The vehicle you invest through holds a particular class of shares, and the valuation quoted on a deal is usually the company's headline post-money figure. That figure, as covered above, is calculated on the most protected preferred shares and systematically overstates the value of anything more junior.

The number on a deal page is a starting point, not a conclusion. Before committing, a disciplined investor establishes which share class the vehicle holds, what the senior shares' liquidation preferences would do to junior holders in a modest exit, how the implied revenue multiple compares to similar companies, and what recent secondary transactions in the relevant class have cleared at. Reputable platforms provide the information needed to answer these questions, and the willingness to provide it is itself a quality signal. Platforms operating under Australian Financial Services Licence #482668 and comparable regulatory standards are subject to disclosure obligations that support this kind of diligence.

The companies available through NonPublic, including SpaceX, OpenAI, Anthropic, and Anduril, carry the same valuation complexity as any private business, and the same framework applies to each. A headline valuation tells you the scale of the opportunity. Reading it properly tells you what you would actually be buying.

For wholesale and sophisticated investors who want to work through the valuation and share-class specifics of a current opportunity, our team can walk through the details of any vehicle on the platform. You can arrange a conversation with the team to go through what is available, or read our 2025 Private Markets Landscape report for a broader view of how private market pricing behaves.

NonPublic Pty Ltd (ABN 49 607 216 928) holds Australian Financial Services Licence #482668. Investments are available to wholesale and sophisticated investors as defined under the Corporations Act 2001. This content is general in nature and does not constitute financial product advice. It does not take into account your objectives, financial situation, or needs. Investing in private markets involves significant risk, including the potential loss of your entire investment. Past performance is not a reliable indicator of future results. You should obtain independent financial advice before making any investment decision.