What makes a valuation defensible in diligence

Founders tend to arrive at a first meeting with a pre-money valuation. Investors tend to leave it with a list of questions about how that number was reached. The number itself rarely stays at the centre of the negotiation for long. What gets negotiated is the chain of assumptions underneath it and diligence is where that chain gets tested, one link at a time.

The strength of that chain matters beyond the round itself. For the same amount raised, a valuation the plan can defend leaves the founders owning more of the company, and ownership is where control sits.

1. The number is the conclusion

A valuation is the last line of an argument. It depends on what the company has already proven, what the new capital will fund, how long that will take and what the business should be worth when it gets there. Change any of those inputs and the number moves. An experienced investor knows this and works backwards from the number to the inputs, looking for the one that gives way first.

2. What investors actually test

The first test is whether each assumption rests on something verifiable. A growth rate taken from a signed pilot carries weight. The same rate borrowed from a market report about a different segment carries very little.

The second is whether the milestones the round is meant to fund are realistic for the money and time available. A plan that reaches its next value inflection point with no margin for delay is a plan the investor will reprice, because early-stage timelines tend to slip, particularly in regulated or hardware-heavy sectors. We set out what that means for MedTech and DeepTech rounds in earlier analyses.

The third is whether today’s price leaves room for the next round. An investor at seed is also asking what a Series A lead will need to see before paying more, and whether the company can realistically show it by then.

3. Where dilution becomes control

Percentages on a cap table matter because company law attaches rights to them. Under the UK Companies Act 2006, for example, an ordinary resolution passes with a simple majority of votes, while a special resolution, required for decisions such as amending the articles of association, needs at least 75%. Other jurisdictions set their own thresholds and shareholders’ agreements often add more. The logic is the same everywhere: below certain lines, founders can no longer pass decisions alone or block the ones they disagree with.

The illustration on our How We Work page shows the mechanism with a simplified example. Two founding teams raise the same amount, and the strength of the valuation argument alone decides whether they keep 70% of the company or drop to 40%.

4. The typical path and why it compounds

Carta’s Founder Ownership Report 2026, based on rounds raised between 2021 and 2025, puts median founding team ownership at about 56% of fully diluted equity after a seed round and 36% after a Series A. In physical industries the Series A figure drops to 30.5%. By Series C, the median employee option pool holds slightly more of the company than the founding team does.

Those are medians across thousands of companies and they describe what happens by default. Each percentage point given up at seed is carried into every later round, because later investors buy a share of what’s left. A seed price set below what the evidence supports therefore costs equity at every round that follows, since each one starts from it.

5. An overpriced round costs control too

The opposite mistake is just as expensive. A valuation set above what the plan can support tends to hold only until the next round tests it. If the company then raises at a lower price, standard anti-dilution provisions in venture financing documents adjust the earlier investors’ terms to compensate them, and the extra dilution falls on shareholders without that protection, usually the founders and employees. A down round also shapes the conversation with every investor who comes after it.

The price worth aiming for is the one the evidence supports at the time of the round, argued clearly enough that diligence confirms it.

That argument is built before the first investor meeting. By the time diligence starts, the founders who hold their valuation are usually the ones who already know which assumption an investor will test first and have the evidence ready.

Frequently asked

Sources and references

• Carta, Founder Ownership Report 2026, rounds raised from 2021 to 2025.
• UK Companies Act 2006, sections 21, 282 and 283 on amending the articles, ordinary resolutions and special resolutions.
• British Private Equity & Venture Capital Association (BVCA), model documents for early-stage investment, on standard anti-dilution provisions.
• AYAKO Partners internal analysis.