How It Works
The Black-Scholes model, developed by Fischer Black and Myron Scholes (1973 Nobel Prize), prices European call options. For startups, equity can be modeled as a call option on the company's assets with the strike price being the liquidation preference.
d₁ = [ln(S/K) + (r + σ²/2)T] / [σ√T] d₂ = d₁ - σ√T
Call Value = S · N(d₁) - K · e^(-rT) · N(d₂)