This explains why a startup can be described as "worth" millions even before it's profitable. However, a high valuation isn't the same as cash sitting in the company's bank account.
Frequently Asked Questions
How can an unprofitable startup have a high valuation?
Investors may believe the business has significant future growth potential.
Does valuation mean the founders have that much cash?
No — valuation represents an estimated value of the business or its shares, not cash available to the founders.
Can a startup's valuation fall?
Yes — valuations can change when market conditions, financial performance, investor expectations or business prospects change.