---
title: "Viewing Valuation as a Discount of Future Value"
description: "Discover how growth rates impact startup valuations: see why a 100% growth company creates 85% of its value in just 3 years vs. 77% at 10% growth."
categories: ["exits","financials","startups"]
keywords: ["valuation","growth rate","startup","venture capital","Theory Ventures","Tomasz Tunguz","exit strategy","financials","SaaS","technology"]
ai_summary: "Learn how growth rates significantly impact startup valuations, with insights from a hedge fund manager."
date: 2019-04-04
lastmod: 2026-07-21
canonical_url: https://www.tomtunguz.com/why-growth-matters-so-much/
author: "Tomasz Tunguz"
---

![](https://res.cloudinary.com/dzawgnnlr/image/upload/q_auto/f_auto/w_auto/v1554260963/growth_rate_future_value.png)

Why does growth rate matter so much? Why does growth rate influence valuation so much? I was reading a [book recently written by a hedge fund manager who discussed valuation frameworks](https://www.amazon.com/7-Powers-Foundations-Business-Strategy/dp/0998116319). His explanation was one of the best I've come across.

If your business is growing at 100% next year, then 90% the year after, and then about 80% the year after, the business will have grown 6.9x. That's the way I've always looked at company.

But this hedge fund investor said it a different way: 85% of the value of the business will be created in the next 3 years.  At 10% growth, the company's value today is 77% of the value in three years. The value won't change that much. It's already the most of the size it will be.

Same cup, same water, just a different perspective.

The chart above shows how this changes with different growth rates. It assumes a company starts growing at the growth rate on the y-axis. This growth rate falls 10% each year. On the x-axis, you can see the fraction of the enterprise value (EV) that will be created in the next 3 years.

Instead of looking at today's valuations as a multiple of current revenues, we can think about it as a discount to the future value. This math makes that perspective concrete.

Photo by [Daniel Mayovskiy](https://unsplash.com/photos/ai6IRDJQMKw?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText) on [Unsplash](https://unsplash.com/search/photos/rocket?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText)