Explain what the valuation step-up between rounds means.

Question

BlackTom AI · Accepted Answer

Interpreting the question, we’re asked to explain what the valuation step-up between rounds means.
Option 1: 'The post money valuation' — This describes the value of a company after a funding round, including the new cash, but it is not specifically the metric for comparing valuations across rounds. It relates to the immediate implied value after investment, not the ratio between rounds.
Option 2: 'A metric obtained by dividing a company's current valuation by the valuation of its previous round' — This directly defines a valuation step-up as a growth ratio from one round to the next, capturing how much more (or less) the company is valued compared to the prior round. It aligns with the concept of measuring how the valuation has increased from round to round and is the standard way people describe a step-up.
Option 3: 'The change in IRR over the investment' — IRR (internal rate of return) tracks the efficiency of cash flows over time, not the valuation per se. A valuation step-up concerns the company’s valuation multiple between rounds, not the internal rate of return on the investment, so this option conflates two separate metrics.
In summary, the second option accurately captures the idea of a step-up as a ratio comparing current valuation to the valuation in the previous round, while the first pertains to post-money value in a single round and the third to performance metrics unrelated to round-to-round valuation levels.

ENTR6212.30694.202530 Quiz 1

Explain what the valuation step-up between rounds means.

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