Retention ratio

In the venture capital method, the share of an investor's current ownership expected to remain after dilution from future funding rounds.

Example

Owning 20% today and expecting 10% at exit is a 50% retention ratio.

More expected dilution means a lower justifiable price today.

Dilution — The reduction in your percentage ownership of a company when it issues new shares to someone else.
Venture capital method — A valuation approach that estimates a company's exit value, divides by the return multiple an investor requires and adjusts for expected dilution to find the price that can be paid today.

Ownership at exit is ownership today multiplied by every round's dilution — An early investor's final ownership is their entry stake reduced by each later round and option pool increase. Modelling the chain shows what exit value is needed for a target return. (11 min)
The VC method works backwards from the exit — The venture capital method starts from a plausible exit value, divides by the return an investor needs, and adjusts for future dilution to reach what the company can be worth today. (11 min)