Where the number comes from
Common approaches include the price of the last funding round, comparable-company or transaction multiples, discounted cash flow, and for credit assets, amortised cost with impairment assessments.
Each rests on assumptions: growth rates, discount rates, chosen comparables and the assumption that the last round is still representative. Change one assumption and the number changes materially.
Why a valuation is not a price
Valuations are usually produced quarterly or annually and are often stale by the time you see them. They may not reflect the liquidation preferences, ratchets or anti-dilution rights sitting above your economic position.
A valuation is an estimate of worth under a policy. It is not an offer, not a guaranteed exit price, and not a promise that anyone will pay it.
Questions worth asking
Who produced the valuation and are they independent of the manager? What method and date were used? How often is it refreshed? What happens if the next funding round prices below the last one?
Down rounds happen. A stated valuation can fall sharply, and the fall is often reported long after the underlying deterioration began.