WACC vs VC Discount Rate

Which Discount Rate Fits Your Valuation?

Understanding Discounting in Valuation Models

In business valuation, the choice of discount rate can dramatically impact how a company's future is valued today.

There are two common approaches to discounting in DCF:

What is WACC?

WACC is the average rate a company is expected to pay to finance its assets, weighted by the proportion of debt and equity in its capital structure.

📌 Formula: WACC = (E/V) × Re + (D/V) × Rd × (1 – Tc)

1. Used for mature businesses
2. Based on actual cost of debt and equity
3. Market-driven, precise, & grounded in financial theory

What is VC Discount Rate?

It reflects the minimum acceptable rate of return required by VCs to compensate for extreme risk, long holding periods, and illiquidity.

📌 Typical Range:

• Seed Stage : 50%–70%
• Series A/B : 30%–50%
• Growth Stage : 20%–30%

WACC vs. VC Discount Rate – Quick Comparison

Final Takeaway

The difference between WACC and VC Discount Rate isn't just technical — it's philosophical.

• WACC says: "Let's value what exists."
• VC Rate says: "Let's price in what could exist, but probably won't."

Both are tools. But using WACC to value a startup is like using a scalpel to cut firewood — the wrong tool for the job.

Choose wisely. Because valuation isn't just math — it's judgment. 🔍

Have you ever had to choose between WACC and VC Method in a real project? What challenges did you face?

Let's discuss in the comments 💬