Private Market Valuations Are Lagging Reality — And That’s a Risk

Private market valuations have always moved more slowly than public markets. That lag was once considered a feature: it reduced volatility, supported long-term thinking, and avoided the emotional swings of daily pricing.

Today, that same lag is becoming a risk.

Over the past few years, public markets have repriced dramatically in response to inflation, rising interest rates, and tighter financial conditions. Multiples compressed, growth expectations reset, and investors recalibrated what risk-adjusted returns should look like.

In contrast, many private valuations remain anchored to assumptions formed in a very different environment. This disconnect matters more than many founders and investors realize.

Private valuations often rely on the most recent funding round, comparable transactions, or precedent multiples that no longer reflect current capital costs. While this can temporarily preserve paper value, it creates a growing gap between perceived worth and realizable value.

The risk emerges when a liquidity event forces reconciliation.

Down rounds, stalled exits, and extended fundraising timelines are often symptoms of this lag. Businesses that appeared well-capitalized on paper suddenly face difficult conversations when new investors apply updated return expectations to old assumptions.

From a valuation standpoint, this is not simply about lowering multiples. It’s about reassessing fundamentals. Growth rates achieved through aggressive spending look different when capital is scarce. Margins projected in a favorable funding environment may not materialize when investment slows. Exit assumptions based on peak-cycle comparables become increasingly fragile.

Another challenge is psychological. Founders and early investors become anchored to prior valuations, treating them as reference points rather than estimates tied to market conditions. This anchoring can delay necessary strategic decisions, including cost restructuring, capital reallocation, or recalibrated growth plans.

Institutional investors are increasingly aware of this gap. Many are now underwriting private investments with public-market benchmarks in mind, adjusting expected returns upward to compensate for illiquidity and opacity. This, in turn, puts downward pressure on entry valuations, even if headline numbers have not yet adjusted.

For operating companies, the danger lies in planning against outdated signals. Hiring, expansion, and capital commitments made under inflated valuation assumptions can strain cash flows when market realities assert themselves.

At Epoch Ventures, we encourage clients to view valuation as a living framework rather than a static label. A credible valuation today is one that reflects not only company performance, but also prevailing market conditions, capital availability, and investor behavior.

Private markets will eventually catch up to reality. The question is whether businesses adjust proactively or are forced to adjust under pressure.

Valuations that lag too far behind reality do more than misprice risk. They distort decision-making. And in an environment where capital is cautious and selective, that distortion can be costly.