How to use the venture capital method calculator
VC method values a startup from its exit:
- Exit value. Enter what the whole company could be worth in the exit year, or choose the metric option and enter projected exit-year revenue (or earnings) and the multiple buyers pay for comparable companies.
- Target return. Enter it as a money multiple (for example 10×) or as an annual IRR. The calculator converts one into the other using the years to exit.
- Years to exit, investment and dilution. Dilution is how much the investor’s percentage will shrink in later rounds before the exit. If the company plans two more rounds that each sell 20% of the company, the stake keeps 0.8 × 0.8 = 64% of its size, so dilution is 36%.
VC return runs the other way: enter the investment, the ownership bought, expected dilution, an exit value and the holding period to see the proceeds, MOIC and IRR.
The formulas
Pre-money today = Post-money − Investment
Ownership at exit = Target multiple × Investment ÷ Exit value
Ownership at investment = Ownership at exit ÷ (1 − Dilution)With an IRR target, Target multiple = (1 + IRR)years. With the metric option, Exit value = Exit-year revenue or earnings × Exit multiple.
MOIC = Proceeds ÷ Investment
IRR = MOIC1 ÷ years − 1This assumes a single investment and a single payment at exit, and that the investor's shares are worth their percentage of the exit value.
A worked example
VC method. An investor considers putting $2,000,000 into Company B. If things go well, it could be sold for $150,000,000 in 5 years. The investor needs a 10.0× return and expects later rounds to dilute the stake by 30%.
To turn $2,000,000 into $20.00M, the investor must own 13.3% at exit, which means buying 19.0% today. That sets the post-money valuation at $10,500,000 and the pre-money valuation at $8,500,000. A 10.0× return over 5 years works out to an IRR of 58.5%.
VC return. The investor instead buys 20% for $2,000,000. After 30% dilution the stake is 14.00% at exit, and a $150,000,000 sale returns $21,000,000: a MOIC of 10.50× and an IRR of 60.0%. The investor gets the money back at any exit above $14,285,714.
What drives a VC method valuation
The valuation is the exit value scaled down by the target return and the dilution, so each input moves it in proportion:
| Change from the example | Pre-money today | Ownership at investment |
|---|---|---|
| The example | $8,500,000 | 19.0% |
| Target 5× instead of 10× | $19,000,000 | 9.5% |
| Target 20× instead of 10× | $3,250,000 | 38.1% |
| Target IRR 40% instead of 10× | $17,523,115 | 10.2% |
| Dilution 50% instead of 30% | $5,500,000 | 26.7% |
| Exit value $75M instead of $150M | $3,250,000 | 38.1% |
Halving the exit value or doubling the target return has the same effect on the post-money valuation. The pre-money falls by more than half, because the investment is subtracted from a smaller post-money. This is the lesson of the method for founders: a startup’s valuation today rests on a story about its exit, and investors discount that story heavily. A credible path to a larger exit is worth more in a negotiation than arguing about the multiple.
Ignoring dilution is the most common mistake. Without the 30% adjustment, the same inputs would justify a pre-money of $13,000,000 instead of $8,500,000, a valuation the investor’s return could not support once later rounds are raised.
Exit value and returns
The return tab shows how unforgiving the arithmetic is. At the same entry terms:
| Exit value | Proceeds | MOIC | IRR |
|---|---|---|---|
| $50,000,000 | $7,000,000 | 3.50× | 28.5% |
| $150,000,000 (example) | $21,000,000 | 10.50× | 60.0% |
| $500,000,000 | $70,000,000 | 35.00× | 103.6% |
Time matters too. The same 10.50× spread over eight years instead of five is an IRR of 34.2% rather than 60.0%. Startups often take longer to exit than planned, which is why investors track both numbers.
Power-law returns
Venture returns follow what is often called a power law: across a portfolio, most investments return less than their cost or fail outright, a few return a modest multiple, and a very small number return many times the whole fund. The winners pay for everything else.
That shapes how investors use this method. A high target multiple is not a forecast of the likely outcome; it is the return a deal must be able to deliver if it succeeds, so that the few successes can carry the portfolio. Early-stage investors, facing the highest failure rates, typically demand the highest multiples; later-stage investors, backing companies with revenue and a clearer path, accept lower ones. The figures vary by investor, stage and market, so treat any rule of thumb as a starting point.
What this calculator does not include
- Liquidation preferences. Preferred shareholders usually get their money back before common holders in a sale, so at modest exits the investor’s proceeds can exceed their percentage of the exit value.
- Probability of failure. The method uses one successful exit. Some investors instead weight several outcomes by their probabilities, which is equivalent to using a higher target multiple.
- Follow-on investments. Investors who buy more shares in later rounds reduce their dilution but invest more money; model that as a separate investment.
- Fees, carried interest and taxes, which separate a fund’s gross returns from what its own investors receive.
- Option pools and SAFEs, which change the dilution estimate. The equity dilution calculator models later rounds explicitly.