Discount Rate
Definition
The rate applied to future cash flows to calculate their present value. The discount rate reflects the time value of money and the risk that projected cash flows will not be achieved. For early-stage companies, the discount rate reflects the high probability that cash flow projections will not be achieved as forecast. The discount rate for an early-stage company is not derived from public company cost of equity data without adjustment for the additional risks of an early-stage business.
Common Misapplication
The most common misapplication is applying a discount rate derived from public company weighted average cost of capital to an early-stage company without adjustment for illiquidity, execution risk, key person risk, and stage differences. An unadjusted public company discount rate of ten to twelve percent applied to a pre-revenue startup produces an implied valuation that is materially higher than any comparable private market transaction.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.2: Discounted Cash Flow Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Discount Rate. https://ffistandard.org/glossary/discount-rate/. 2026.