What the owners actually receive: enterprise value, plus the cash in the business, minus the debt it owes. This is the number a founder should look at, because a headline price can shrink considerably by the time debt is settled.
Why it matters
A headline valuation is almost never the number that arrives in a founder's account, and equity
value is the reason. It is enterprise value adjusted for the cash the
business holds and the debt it owes, and that adjustment is where a deal that sounded generous can
quietly shrink. A founder who tracks the multiple but never asks about the bridge to equity value
is tracking the wrong number for their own outcome.
This is also the figure that gets divided among shareholders according to the cap table, so
preference terms, outstanding options, and any liquidation preferences that sit ahead of common
stock all come out of equity value before a founder's own share is calculated. The distance between
"the company sold for X" and "I received Y" is almost always explained somewhere inside this step.
How it works
Equity value starts from enterprise value and moves in the opposite direction from the bridge
described there: add the cash sitting in the business, subtract the debt it owes, and adjust for
anything else that behaves like one or the other — unfunded obligations, minority interests, and
similar items a buyer's advisors will identify during diligence.
Once a single equity value figure exists for the company, it still has to be divided. That division
runs through the cap table and any liquidation preferences ahead of common shares, so two companies
that sold for the identical equity value can hand very different amounts to their founders,
depending on how much preferred stock and debt-like financing sits ahead of them in the queue.
A founder who wants to know what a deal is really worth to them personally has to run this
calculation twice: once at the company level, to get from enterprise value to equity value, and
once again at the shareholder level, to get from equity value to their own proceeds. Skipping the
second step and assuming a pro-rata share of the headline number is one of the most common ways a
founder is surprised by a closing statement.
Questions people ask
- How is equity value different from the price quoted in a term sheet?
- A term sheet price is frequently quoted on an enterprise basis, meaning it describes the business itself before cash and debt are settled. Equity value is what remains once the actual cash and debt figures at closing are applied, so the number in the term sheet and the amount that eventually reaches shareholders can differ once that bridge is calculated.
- Why can two companies with the same equity value pay founders different amounts?
- Because equity value has to pass through the cap table before it reaches any individual shareholder, and preferred stock or liquidation preferences ahead of common shares get paid first. Two companies with an identical total equity value can leave very different amounts for founders depending on how much sits ahead of them in that order.
See also
Enterprise value,Working capital adjustment
More in Valuation
- Comparable companies — Valuing a company by looking at what similar public companies trade at.
- DCF — Valuing a company by forecasting the cash it will produce and reducing each future year to what it is worth today.
- EBITDA multiple — A valuation expressed as a multiple of annual EBITDA.
- Enterprise value — What the business itself is worth, independent of how it is financed: the value of the operations before counting cash in the bank or debt owed.
- Precedent transactions — Valuing a company by what buyers actually paid for similar companies.
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Updated 2026-09-09