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When your company’s valuation increases, the estimated value of your equity also increases. This usually happens when an investment is made or when a 409a valuation is performed. If your company's valuation decreases, the estimated value of your equity may also decrease. The value of the shares in equity pools will rise or fall depending on the company’s valuation.

Valuations can be done in a variety of ways. But in general, valuations can be classified under two very broad categories: technical or speculative. Technical valuations are very data-focused. Information such as revenue, profits, and debts are used to determine the value of a company. Speculative valuations, on the other hand, are focused on the potential growth of a company.

Most startups are looked at under a speculative valuation lens. A valuation basically determines the estimated worth of your equity.