What is the difference between private and public company valuations?
Short Answer
Public company valuations are determined by market price (daily trading), are transparent, and reflect broad investor sentiment. Private valuations are based on negotiation, comparable transactions, or investor rounds, and are opaque.
Full Explanation
Public companies' share prices fluctuate minute-by-minute based on trading activity; the market cap is simply share price × shares outstanding. This creates transparency but also volatility — share price can disconnect from fundamentals short-term. Private company valuations are set through negotiation: a Series A round at £5M pre-money establishes a valuation, but this is between the founder and investor, not derived from thousands of daily transactions. Private valuations also tend to be optimistic — they reflect management's best-case assumptions and investor appetite for growth stories. When a private company goes public (IPO), often the IPO price is discounted 15-30% from the last private round valuation, reflecting the broader market's more conservative view. This is why founders and later-stage private investors sometimes suffer from IPO 'pops' that exceed opening price (underpricing by the bank) or 'pops' that crash below opening price (overpricing in private rounds). Understanding this dynamic matters: private valuations are agreements between informed parties but are not final judgments of value. Acquirers in M&A will conduct their own valuation and may reach different conclusions than the private market.
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Further Reading
LTV:CAC for Founders: The Ratio That Predicts Fundraising Success
LTV:CAC is the ratio investors use to determine whether your business model works. This guide explains how to calculate it correctly, the benchmarks by stage and business model, and why improving LTV:CAC signals intangible asset compounding.
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