[reilly3000]

The valuation is established by the person writing the check. It’s based on their perceptions of the market and how the team is tackling it. VCs don’t really care about dividends, they care about exits. They are trying to buy part of a startup for less than they can sell it to a buyer or the markets. The financial capacity of potential acquirers and their relative need for the startup’s business drives what that check writer is willing to pay. IE the market for a startup’s equity is the input, and the valuation is the output.