Company valuation and equity plans: the practical guide

Company valuation fascinates founders and often confuses decision-making at the same time. Many executives want to know "the value" of their company as if there were one permanent and objective number. In real life, there is not. In 2026, valuation is not a trophy and it is not a theoretical spreadsheet exercise. It is a negotiation base, a governance tool and often the starting point of another sensitive topic: equity plans.

These two subjects are deeply linked. You cannot distribute or promise equity instruments blindly. As soon as you think about:

• bringing in an investor;
• associating a key executive;
• retaining talent;
• preparing a fundraising round;
• organising a partial transfer;
• or arbitrating between cash compensation and equity compensation,

you must answer two core questions:

1. What is the company really worth today?
2. How should that value be shared or promised without destabilising the business?

In 2026, the issue is even more strategic. Investors increasingly scrutinise the consistency between business KPIs, accounting and cap table. The French BSPCE regime was adjusted through the 2025 Finance Act, with BOFiP comments published in August 2025, which means equity plans must now be structured with greater care.

This guide gives you a practical framework to value a company intelligently and choose the right equity-sharing tools without creating tax, legal or cap-table problems.

The first idea to accept is simple: valuation is rarely one absolute number. It is usually a defensible range depending on:

• the context;
• the transaction type;
• the investor or buyer profile;
• the quality of financial data;
• the liquidity of the shares;
• the perceived risk.

In other words, valuation is an economic reading, not a magical formula.

Value depends on the situation#

Valuation is not identical whether you are:

• selling 100% of the company;
• opening 10% of the capital to an investor;
• setting the exercise price of BSPCE;
• granting free shares;
• building a management package;
• carrying out an internal group transaction;
• negotiating with a bank;
• or preparing a transmission.

The same company may therefore have different defendable values depending on the operation.

What destroys valuation credibility#

We often see the same errors:

• applying a random market multiple found online;
• ignoring debt, cash, working capital or litigation;
• valuing a startup only on ambition;
• forgetting illiquidity discounts;
• confusing pre-money, post-money and sale price;
• announcing a valuation with a weak cap table and no support memo.

Valuation only has value if it is explainable.

There is no single method. Several families of methods must be combined with judgement.

1. Asset-based approach#

This values the company based on net assets, adjusted where necessary.

It is often relevant for:

• holdings;
• asset-heavy businesses;
• low-scalability structures;
• businesses where asset value dominates.

Its limits:

• it undervalues growth dynamics;
• it often misses the value of services, software, brand and know-how.

2. Multiple-based approach#

This is the most common market practice. A multiple is applied to a reference metric:

• EBITDA;
• EBIT;
• revenue;
• ARR / MRR for SaaS businesses;
• occasionally gross margin or contribution margin.

It is useful because it reflects market behaviour, but only if the comparables are genuinely comparable:

• same sector;
• same growth profile;
• same risk level;
• same recurrence quality;
• same customer concentration;
• same maturity.

3. Future-cash-flow approach#

DCF-style approaches discount future cash flows.

They are intellectually robust, but extremely sensitive to assumptions:

• growth;
• margin;
• capex;
• working capital;
• cost of capital;
• terminal value.

They are often best used as a consistency check rather than the sole basis in volatile businesses.

4. Transaction approach#

This relies on recent comparable transactions.

It can be very useful in SME or fundraising contexts, provided the reference transactions are genuinely relevant.

For a conventional SME, valuation often combines:

• historical profitability;
• revenue quality;
• recurrence;
• customer concentration;
• financial structure;
• working-capital intensity;
• dependence on the owner-manager.

Questions that change everything#

Before talking about multiples, you should answer:

• is revenue stable, growing or fragile?
• is margin genuinely recurring?
• does the company depend on one client or one founder?
• is management autonomous?
• is working capital consuming cash?
• are future investments needed?
• are accounts clean or heavily adjustable?

Two businesses with EUR 1 million of EBITDA can have very different values depending on the quality of that EBITDA.

Adjustments not to forget#

A serious valuation often requires adjustments for:

• owner compensation;
• exceptional items;
• personal or non-recurring expenses;
• unusual management fees;
• net debt;
• latent tax or payroll risks.

For startups, the logic is different. The future matters more than the past, but that does not mean anything can be justified.

What investors actually look at#

Startup valuation depends in part on:

• traction;
• MRR / ARR quality;
• churn;
• growth pace;
• gross margin;
• burn;
• runway;
• market size;
• quality of the founding team;
• execution credibility.

Common startup mistakes#

We often see:

• ARR not reconciled to accounting;
• non-recurring revenue presented as recurring;
• churn underestimated;
• messy cap tables;
• valuation copied from incomparable startups;
• total underestimation of future dilution.

Pre-money, post-money and dilution#

Take a simple example.

If your startup is valued at EUR 4 million pre-money and an investor puts in EUR 1 million, the post-money valuation becomes EUR 5 million.

The investor then owns:

• EUR 1 million / EUR 5 million = 20% of the post-transaction capital.

This looks simple, but many founders still talk in promised percentages without fully modelling:

• future rounds;
• option pools;
• anti-dilution clauses;
• conversion of hybrid instruments.

Once value is discussed, the next issue is how that value may be shared. This is where equity plans and similar instruments come in.

They are not only there to "please" a key executive. They are designed to:

• align incentives;
• retain key talent;
• compensate for limited cash capacity;
• attract senior profiles;
• support governance maturity;
• share future upside without giving away too much capital too early.

The most common tools#

Depending on the case, the relevant tool may be:

• BSPCE;
• free shares;
• stock options;
• ordinary or preferred shares;
• and, in some cases, warrants or bespoke mechanisms.

The right choice depends on:

• the type of company;
• the profile of the beneficiary;
• timing;
• expected tax treatment;
• acceptable dilution;
• exit strategy.

BSPCE#

The BOFiP updated on 12 August 2025 details the scope and mechanics of BSPCE. The French tax administration also updated its practical guidance in January 2026 regarding the taxation of gains on BSPCE.

Since the changes following the 2025 Finance Act, you need to pay close attention to:

• grant date;
• exercise/subscription date;
• length of service;
• plan documentation;
• chosen exercise price.

BSPCE are not just a startup HR buzzword. They are a legal and tax instrument that must be properly calibrated.

Free shares#

Free shares can be useful for retention and alignment, but they are not neutral. Timing, acquisition period, dilution cost, tax treatment and liquidity strategy all matter.

The real issue: price consistency#

The most sensitive issue is often not the instrument itself, but the consistency between the selected valuation and the equity plan.

If the valuation is too high:

• upside becomes less meaningful for beneficiaries;
• the plan becomes demotivating;
• the HR objective weakens.

If the valuation is too low and poorly documented:

• tax risk increases;
• future due diligence becomes harder;
• governance credibility suffers.

Expert note

The most common mistake is not wanting to share value. It is promising percentages without explaining the starting value, the future dilution and the real liquidity horizon. A good equity plan must be legally clean, tax-defensible and understandable for humans.

Would you like to model this strategy for your business? Book a personalised review with our team.

Take Lina, founder of a B2B SaaS startup.

Starting point#

The company shows:

• EUR 900,000 ARR;
• 70% annual growth;
• 78% gross margin;
• EUR 650,000 cash;
• EUR 55,000 monthly burn;
• 14 team members.

Lina is preparing a seed+ round and wants to attract an experienced CTO and Head of Sales. She wants an equity plan without giving away too much too early.

Valuation work#

We review:

• ARR quality;
• churn;
• KPI/accounting consistency;
• cash trajectory;
• net debt;
• cap-table structure.

After review, the company retains a EUR 5 million pre-money valuation, consistent with its stage, metrics and realistic comparables.

Equity-plan setup#

A target pool of 8% is reserved for incentive instruments.

Illustrative split:

• 3% for the CTO;
• 2% for the Head of Sales;
• the balance for future key hires.

But instead of speaking only in percentages, we explain to Lina and the beneficiaries:

• the chosen valuation base;
• vesting conditions;
• liquidity events;
• the impact of future fundraising;
• the effect of dilution.

Result#

The story becomes much stronger:

• for the hires;
• for the investors;
• for the board.

The company does not give away value blindly, and beneficiaries understand the real logic of upside creation.

• Overvaluing the company to flatter the founder's ego.
• Under-documenting the valuation method.
• Confusing economic value and immediate negotiation price.
• Creating an equity plan without a dilution strategy.
• Talking in percentages without talking about liquidity.
• Choosing an instrument only for its supposed tax reputation.
• Forgetting the impact of future fundraising rounds.
• Neglecting the cap table and existing rights.
• Building bespoke legal structures without financial consistency.

Company valuation and equity plans should be thought through together. In 2026, executives need an approach that is:

• financial: understanding what really creates value;
• legal: selecting the right instrument;
• tax-aware: securing the applicable regime;
• strategic: sharing value without damaging the future.

The key takeaways are simple:

• valuation is usually a defensible range, not a sacred number;
• the right method depends on the transaction;
• equity plans are alignment tools, not HR gadgets;
• BSPCE and free shares require real discipline;
• cap table, future dilution and liquidity must be clearly explained.

Hayot Expertise, based in Paris 8, supports you end to end. Request your first complimentary discovery meeting to review your valuation, your cap table and the right equity-plan architecture for your situation.