An exit assumption implies an entry price.
The venture capital method works backward from a possible exit and an investor’s target return. This version also reduces entry ownership for an explicit future-dilution assumption, making the reserve and financing path visible.
The resulting entry valuation is the price consistent with the inputs, not a market valuation. A required entry stake above 100% signals an infeasible combination of check size, exit value, time, return target and dilution.
The formula, made clear.
- Exit equity value
- Equity value after debt and senior claims, not enterprise value.
- Implied post-money
- Investment divided by the required entry ownership.
- Future dilution
- Cumulative relative reduction in the investor’s initial percentage.
Put the numbers in context.
$2,000,000.00 compounded at 40% for seven years requires about $21,082,700.80 proceeds. At $100,000,000.00 exit equity value and 30% future dilution, entry ownership must be about 30.12%.
| Input | Example value |
|---|---|
| Investment today | $2,000,000.00 |
| Exit equity value | $100,000,000.00 |
| Target annual return | 40% |
| Years to exit | 7 years |
| Future ownership dilution | 30% |
| Implied entry post-money valuation | $6,640,515.43 |
What this calculation assumes
One initial investment and one terminal equity distribution, no follow-on checks, interim dividends, preferences or tax. Target return and exit value are user assumptions. No probability-weighted failure adjustment.
Methodology references
What to consider next.
Test lower exits and longer holding periods, then model follow-on investments if the investor plans to maintain ownership.
How we approach financial models →