If you hold shares in a privately held business—or have employee stock options—your first instinct might be to look for a ticker symbol and a daily price. But private equity values aren’t “quoted” the same way. They’re typically estimated using a mix of financial analysis, market comparisons, and the specific rights attached to what you own.
Start with: “What am I valuing?”
Private-company equity can mean several things, and the details matter:
- Common stock vs. preferred stock (preferred often has special rights, like liquidation preferences)
- Vested vs. unvested shares/options
- Options (the right to buy shares later) vs. shares you already own
- Transfer restrictions (many private shares can’t be freely sold)
Those features can materially change value—sometimes more than the company’s headline “valuation.”
How private-company shares are commonly valued
Valuations typically start with the company’s overall enterprise value, then allocate value across different share classes.
Common approaches include:
- Income approach (cash-flow based): Estimates value from expected future cash flows, discounted back to today. This is often associated with discounted cash flow (DCF) analysis.
- Market approach (comparable companies): Looks at valuation multiples (like price-to-revenue or price-to-earnings) of similar businesses—public or private—then adjusts for differences.
- Asset-based approach: Values the company based on assets minus liabilities (more common for asset-heavy businesses).
Because private businesses are harder to buy and sell, valuations often incorporate adjustments like discounts for lack of marketability (reflecting illiquidity).
How options are valued (and why it’s not just “company value”)
Options are typically valued using option-pricing frameworks (often variations of models such as Black-Scholes), which consider:
- The estimated current value of the underlying shares
- Time to expiration
- Volatility (how much the business value could swing)
- Interest rates
- The option’s exercise price
Practically speaking, an option can have meaningful economic value even if it can’t be easily sold—but that value is still an estimate and can change as the company evolves.
The role of 409A valuations (for many employees)
Many private companies obtain an independent valuation—often called a 409A valuation—to estimate the fair market value (FMV) of common stock for setting option strike prices. This is not the same thing as a funding-round headline valuation, and it can also differ from what preferred shares are worth due to differing rights.
A healthy way to think about private equity value
I often encourage clients to separate two questions:
- “What is it worth on paper today?” (a valuation estimate)
- “What could I actually turn into spendable dollars, and when?” (liquidity timing, taxes, restrictions, and risk)
If you’d like, we can walk through your specific equity type (common, preferred, ISO/NSO options), your company’s latest valuation information, and what it may mean for your broader retirement and planning goals. The goal is clarity—without assuming a best-case outcome.