A surreal financial landscape representing the journey to private company valuation.

Unlock Your Startup's Potential: Demystifying Private Company Valuation

Beau Callahan in Business & Economy December 2025 • 4 min read.

"A Comprehensive Guide to Understanding the Log Private Company Valuation Model and Securing Your Financial Future"

For public companies, financial models for pricing options and managing equity-linked products are well-established. However, private companies face a unique challenge: the absence of readily available, observable stock prices. This lack of transparency makes it difficult to apply traditional valuation methods, hindering their ability to attract investment, reward employees, and plan for the future.

Imagine trying to navigate a maze in the dark. Without clear pricing signals, private companies often struggle to determine their true worth, especially when it comes to offering stock options or structuring equity-linked compensation packages. This is where specialized valuation models become essential, providing a framework for understanding a company's intrinsic value.

This article introduces the Log Private Company Valuation Model, a sophisticated approach built upon the dynamic Gordon growth model. We'll explore how this model addresses the specific challenges of valuing private companies, offering insights into option pricing, risk management, and strategies for sustainable growth. Whether you're a founder, investor, or employee, understanding this model can empower you to make informed financial decisions and unlock your startup's full potential.

The Log Private Company Valuation Model: A Deep Dive

A surreal financial landscape representing the journey to private company valuation.

The Log Private Company Valuation Model is designed to address the unique challenges of valuing companies without publicly traded stock. It builds upon the well-known Gordon Growth Model, which posits that a company's value is based on the present value of its future dividends. However, instead of directly forecasting dividends, the Log Private Company Valuation Model works with logarithmic transformations of key variables, ensuring that stock prices and dividends remain positive—a crucial feature for realistic financial modeling.

The core idea is to establish a relationship between a company's stock price at a given time and its previous price, adjusted for a required rate of return and dividend payments. This relationship is expressed mathematically as:

P(i,t) = (1 + k(i,t))P(i,t-1) – d(i,t)

where:

P(i,t) is the stock price of the i-th company at time t.
k(i,t) is the required rate of return for the i-th company at time t.
d(i,t) is the dividend paid by the i-th company at time t.

To ensure positive stock prices, the model uses logarithmic transformations. By working with the natural logarithms of stock prices and dividends, the model avoids the possibility of negative values, which can occur in traditional dividend discount models. This transformation allows for a more stable and realistic valuation process, especially for companies with volatile earnings or uncertain dividend policies.

Empowering Private Companies with Advanced Valuation Techniques

The Log Private Company Valuation Model represents a significant step forward in addressing the unique financial challenges faced by private companies. By incorporating logarithmic transformations and advanced statistical techniques, this model provides a more robust and realistic framework for valuing these complex entities. As private companies continue to play an increasingly important role in the global economy, tools like this will be essential for making informed investment decisions and fostering sustainable growth.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2206.09666,

Title: The Log Private Company Valuation Model

Subject: q-fin.mf

Authors: Battulga Gankhuu

Published: 20-06-2022

Everything You Need To Know

What are the main challenges private companies face when trying to determine their valuation?

Private companies lack readily available, observable stock prices, which makes it difficult to apply traditional valuation methods. This absence of transparency hinders their ability to attract investment, reward employees with stock options, and plan for the future because there are no clear pricing signals to determine their true worth. This is where valuation models like the Log Private Company Valuation Model become essential.

How does the Log Private Company Valuation Model differ from the Gordon Growth Model, and why is this difference important for private companies?

While the Gordon Growth Model posits that a company's value is based on the present value of its future dividends, the Log Private Company Valuation Model works with logarithmic transformations of key variables. This ensures that stock prices and dividends remain positive, which is crucial for realistic financial modeling. This is particularly important for private companies as it avoids the possibility of negative values that can occur in traditional dividend discount models, offering a more stable valuation process.

Can you explain the formula P(i,t) = (1 + k(i,t))P(i,t-1) – d(i,t) used in the Log Private Company Valuation Model, and what each component represents?

The formula P(i,t) = (1 + k(i,t))P(i,t-1) – d(i,t) is a core component of the Log Private Company Valuation Model. P(i,t) represents the stock price of the i-th company at time t, k(i,t) is the required rate of return for the i-th company at time t, and d(i,t) is the dividend paid by the i-th company at time t. The formula essentially states that a company's stock price at a given time is based on its previous price, adjusted for the required rate of return and any dividend payments, establishing a relationship between these factors.

Why is using logarithmic transformations important within the Log Private Company Valuation Model, and what problem does it solve?

Logarithmic transformations are used in the Log Private Company Valuation Model to ensure positive stock prices and dividends. By working with the natural logarithms of these values, the model avoids the possibility of negative values, which can occur in traditional dividend discount models. This allows for a more stable and realistic valuation process, especially for companies with volatile earnings or uncertain dividend policies. This ensures that the model provides a more robust and reliable valuation.

What implications does the Log Private Company Valuation Model have for investment decisions and sustainable growth of private companies?

The Log Private Company Valuation Model provides a more robust and realistic framework for valuing complex private companies. By offering advanced valuation techniques and incorporating logarithmic transformations, it facilitates informed investment decisions. This model is essential for fostering sustainable growth, as it empowers founders, investors, and employees to make educated financial choices, ultimately helping to unlock a startup's full potential.