HUB 3

Startup Valuation, Equity and Dilution Explained

Valuation is not a fixed number. It is a negotiation outcome influenced by market conditions, company performance and investor perception.

Most founders misunderstand valuation because they treat it as a reflection of worth rather than a function of risk and return.

How is a startup valued?

Valuation is determined by:

• market opportunity

• traction

• growth potential

• comparable companies

At early stage, valuation is driven more by narrative and potential than financial performance.

Use the Startup Valuation Calculator to model realistic ranges.

What is dilution?

Dilution occurs when new shares are issued to investors, reducing existing ownership percentages.

Every funding round introduces dilution.

Use the Startup Dilution Calculator to understand how ownership changes.

How do SAFE and convertible notes work?

These instruments delay valuation and convert into equity at a later stage. Read about SAFE, KISS and STACK Notes.

Key factors include:

• valuation caps

• discount rates

Use the SAFE Note Calculator, SAFE Impact Preview, and Convertible Notes tools to model outcomes.

Why cap tables matter

A cap table defines ownership across founders, employees and investors.

Poor cap table structure creates long-term problems.

Use the Basic Cap Table Builder, Cap Table Outcome Calculator, and Ownership Visualiserto model scenarios.

Why valuation and dilution matter

Incorrect assumptions lead to:

• over-dilution

• misaligned expectations

• failed negotiations

Understanding these mechanics allows founders to negotiate from a position of clarity.