Understanding Valuation, Liquidity and Going Public

This week, Oura postponed one of the most anticipated IPOs of the year.

The smart-ring company had planned to offer 50 million shares at $40–$44 per share, implying a market capitalization of approximately $13.5 billion at the midpoint.

Then, days before the expected offering, Oura decided to wait.

The company cited market uncertainty, even while saying demand for the offering had been strong.

There will be plenty of discussion about what Oura’s decision means for the IPO market.

But as a founder, I think there’s another conversation worth having.

What does a startup valuation actually mean if you can’t—or don’t—sell at that valuation?

Because founders hear four words constantly:

Valuation. Ownership. Liquidity. Exit.

We often use them as though they’re interchangeable.

They’re not.

And understanding the difference becomes increasingly important as your company grows.

Your valuation isn’t money in your bank account

Oura was valued at approximately $11 billion in a private financing round before pursuing an IPO that contemplated a substantially higher public-market valuation.

It’s easy to look at those numbers and think:

The company was worth $11 billion. Now it’s worth $13.5 billion.

But startup valuations don’t work quite that simply.

When an investor participates in a private financing, they’re purchasing a particular security, at a particular price, with particular rights, at a particular point in the company’s development.

That transaction establishes an implied valuation.

It doesn’t mean someone offered that amount to purchase the entire company.

It doesn’t mean every shareholder could sell their shares at that price.

And it definitely doesn’t mean the founders suddenly have their ownership percentage multiplied by that valuation sitting in a bank account.

That’s the first distinction founders should understand:

Valuation isn’t liquidity.

Oura’s planned IPO makes this especially interesting

Oura’s proposed offering wasn’t simply about raising new capital for the company.

According to its SEC filing, Oura itself planned to sell 13.5 million shares.

Existing shareholders planned to sell 36.5 million.

In other words, nearly three-quarters of the shares included in the proposed offering were coming from existing shareholders.

At the midpoint of the proposed range, that represented roughly $1.53 billion of potential gross proceeds for selling shareholders and approximately $567 million for the company, before applicable fees and expenses.

That distinction matters.

When we hear:

“Company X is doing a $2 billion IPO.”

it’s easy to assume the company is receiving $2 billion.

That’s not necessarily what is happening.

An IPO can accomplish several things at once.

It can raise capital for the business.

It can provide liquidity for existing shareholders.

It can establish a public market for the company’s shares.

And it can create a path toward future liquidity for founders, employees, and investors.

Those are separate outcomes.

An IPO isn’t necessarily an exit

This is another misconception I think founders should understand earlier.

We regularly call IPOs “exits.”

But an IPO doesn’t necessarily mean the founders, employees, and investors sell their shares and walk away.

Many continue owning significant portions of the company.

There may be lockups, securities restrictions, contractual restrictions, tax considerations, and other limitations affecting when shares can actually be sold.

So going public doesn’t necessarily mean you’ve exited.

It means something much more fundamental has changed:

Your privately held equity now has the potential to become publicly traded equity.

And with that comes something founders aren’t accustomed to in the private market.

A constantly observable price.

Eventually, the market gets a vote

In the private markets, your valuation may be established through a financing involving a relatively small group of investors.

Once you’re public, the market can reprice your company every trading day.

Your valuation can increase.

It can decrease.

Sometimes dramatically.

And suddenly the number at the top of your last fundraising announcement matters much less than what buyers and sellers are willing to pay for your shares today.

That’s why I think founders should be careful about building their identity—or their company—around valuation milestones.

A $100 million valuation is exciting.

A $500 million valuation is exciting.

Becoming a unicorn is exciting.

But valuation is a moment in time.

The ownership decisions underneath it can last much longer.

Imagine two founders

Founder A builds a company with a $500 million valuation and owns 8%.

Founder B builds a company with a $250 million valuation and owns 35%.

At first glance, you might be tempted to calculate:

Founder A: $40 million.

Founder B: $87.5 million.

But even those numbers don’t tell us what either founder would actually receive.

We would need to know much more.

What securities have been issued?

Are there liquidation preferences?

How much debt exists?

What does the fully diluted cap table look like?

Are there outstanding options, warrants, SAFEs, or convertible securities?

What does the distribution waterfall look like?

Is this another financing round, a secondary transaction, an acquisition, or an IPO?

What are the transaction expenses and tax implications?

And most importantly:

Is there actually someone willing and legally able to buy those shares at that price?

That’s the difference between paper value and realized value.

This is why your cap table matters long before an exit

When you start a company, your cap table may be incredibly simple.

Two founders.

A few shares.

Maybe an advisor.

Then you raise your first SAFE.

Then another.

Then you establish an option pool.

Then you hire employees.

Then comes the priced round.

Then another investor asks for pro rata rights.

An early employee leaves.

An investor wants to transfer shares.

Someone asks about secondary liquidity.

Another financing happens.

Every decision gets layered onto the last one.

And eventually, the simple spreadsheet you created when there were two people building an idea becomes the economic history of the company.

Every SAFE.

Every option.

Every financing.

Every transfer.

Every secondary.

Every investor.

They’re all decisions about who ultimately participates in the value you’re creating.

Founders should ask more than “What’s our valuation?”

Some of the better questions are:

How much of the company do we actually own on a fully diluted basis?

What happens to our ownership in the next financing?

What rights have we granted investors?

What happens if someone wants liquidity before an IPO?

What happens to common and preferred shareholders if we’re acquired?

What does our waterfall look like at different exit values?

How much of our cap table can actually participate in a transaction?

What happens if our eventual exit is below our last private valuation?

Those aren’t nearly as exciting as announcing a new valuation.

But they may ultimately matter more.

The lesson from Oura isn’t whether postponing the IPO was right or wrong

Oura’s management made a decision based on the company’s circumstances and the market it faced.

That’s their decision to make.

The lesson I take from it as another founder is much broader.

Valuation is not ownership.

Ownership is not liquidity.

Liquidity is not necessarily an exit.

And going public doesn’t automatically mean you’ve reached the finish line.

A company can spend years building toward an IPO, prepare the registration statement, establish an expected price range, determine which shareholders intend to sell, prepare to enter the public markets—

and then decide the timing isn’t right.

That’s business.

As founders, there are many things we can control.

We can control how thoughtfully we raise capital.

We can understand the securities we’re issuing.

We can understand our dilution.

We can keep a clean cap table.

We can understand the rights we’re granting investors.

We can build the infrastructure that allows our companies to withstand due diligence.

And, most importantly, we can focus on building actual enterprise value.

What we can’t always control is the price the market will eventually put on it.

So celebrate the valuation milestones.

I certainly understand why founders do.

But don’t let the headline number become the only number you understand.

Because at some point in nearly every founder’s journey, the question changes.

It stops being:

“What is my company valued at?”

And becomes:

“What is the company actually worth in a transaction and what does that mean for everyone who owns a piece of it?”

Those are very different questions.

And founders should understand both.

This article is for educational purposes only and does not constitute legal, tax, investment, or securities advice.