Valuation ≠ Value: How—And Why—Startups Became Obsessively Fixated on getting the most funding possible

Martin Snyder
Jun 15
4 min read

Updated: Jun 26

Every day we see headlines like “New Security company valued at $X B” or “SaaS raises to $X M”—as if valuation alone signals success. But what if these lofty numbers aren’t reality? What if they’re just the outcome of a negotiated fantasy and how did we even get to the point of valuations being so important to the media.

1. Valuation ≠ Value: Numbers Made in Private

Startup valuations in the private market aren’t discovered through open bidding like on public stock exchanges. Instead, they’re the result of a small, negotiated agreement between founders and investors. For example, if a VC offers $25M for 10% of a company, it’s now worth $250M on paper—even if revenue is $0 and product-market fit is nowhere in sight.

This number becomes “the valuation” cited in pitch decks, fundraising rounds, media, and recruiting campaigns. But it’s just a negotiated bet based on potential. It tells you what one person was willing to pay—not what the business is worth to customers, employees, or the broader market.

2. The Media Megaphone: Raising = Winning

Startup media overwhelmingly rewards those who raise large sums—not those who build lasting value. A TechCrunch study showed that more than 80% of coverage for early-stage companies centers on fundraising, not business fundamentals.

It’s no surprise then that companies like WeWork ($47B peak valuation), Nikola (valued higher than Ford), and 23andMe ($6B via SPAC) became media darlings despite glaring operational red flags.

All three companies filed for bankruptcy or collapsed in value between 2023 and 2025. But the hype was already baked in—long before the consequences.

3. The Valuation Trap: Pressure to Perform

High valuations don't just distort perception—they change behavior.

When a company raises at a $1B valuation, the pressure to justify that number dominates internal decision-making. That means:

Prioritizing short-term growth at all costs instead of sustainable scaling.
Delaying hard conversations about product quality or customer churn.
Spending more on brand optics than technical excellence.
Focusing on building for an exit, not for customer satisfaction.

Suddenly, product decisions are no longer about what’s right—they’re about what will impress investors next quarter. Teams chase “metrics that look good on a slide deck” while foundational issues go unaddressed.

4. The Illusion of Momentum

A high valuation creates a gravitational pull. It attracts:

Customers, who assume big valuation means big stability.
Partners, who want to attach themselves to the next unicorn.
Talent, who think joining will be life-changing financially.

But as we’ve seen, momentum doesn’t equal durability. Companies like Bird and AppHarvest raised hundreds of millions—then quietly filed for bankruptcy when growth didn’t materialize.

Momentum built on valuation hype creates false confidence—and that can delay hard choices until it’s too late.

5. The Fine Print: Liquidation Preferences & Multipliers

The most misunderstood part of high-valuation startups? The capital stack—specifically, liquidation preferences and preferred stock.

When VCs invest, they typically receive preferred shares with liquidation preferences. This means they get their money back (sometimes 2x or 3x) before founders or employees see a dime.

As explained in this primer from Carta, a company that raises $300M with a 2x preference must sell for $600M before common shareholders get anything.

It gets worse when participating preferred shares are involved—where VCs get their preference and a pro-rata share of any remaining funds.

That’s how a company can “sell for $700M” and still leave employees and founders with little to show.

For a deeper dive, check out:

6. Why You Should Be Wary of Hype-Only Vendors

For buyers—especially in SaaS, security, or infrastructure—valuation can be dangerously misleading.

Just because a company raised $200M doesn’t mean:

They have a stable product.
They’ll be around in 3 years.
They can support enterprise needs.

Too often, their entire business model is to “land logos” before the next round. You may find yourself dependent on a vendor who can’t stay solvent without fresh capital.

Before buying, ask:

What’s your renewal rate?
How much of your revenue is recurring?
What’s your burn rate and runway?
Are you profitable—or when will you be?

Avoid becoming another beta customer subsidizing an investor dream.

7. The Bottom Line: Build—and Bet—on Real Value

Valuations are just numbers agreed upon in closed rooms. Real value is what customers pay for, what users love, and what teams build with care and discipline.

We’ve reached a breaking point: where the illusion of success has eclipsed the fundamentals. If we want healthier startups—and more resilient markets—we need to start measuring value by something other than fundraising totals.

Next time a company touts a billion-dollar valuation, ask: