🏢 Private Business Valuation

Private Company WACC Calculator

Standard WACC underestimates the true cost of capital for private businesses. This calculator adds size premiums, illiquidity discounts, and company-specific risk — giving you a defensible WACC for private company valuation.

Private Company WACC Calculator

With Private Co. Adjustments

Step 1 — Base Cost of Equity (CAPM)

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Step 2 — Private Company Adjustments to Cost of Equity

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Adjusted Cost of Equity
Ke = Rf + (Beta x ERP) + SP + ILP + CSRP
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💡 The adjusted Cost of Equity is automatically used in the WACC calculation below. You do not need to enter it manually.

Step 3 — Debt

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Step 4 — Equity

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Step 5 — Tax Rate

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💡 US Federal = 21%. Pass-through entities (S-Corp, LLC) may use 0%. Consult your tax advisor.

📊 Your Results

Private Company WACC
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Adjusted WACC
Your result will appear here.
Adjusted Cost of Equity
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After-Tax Cost of Debt
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Equity Weight
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Debt Weight
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📖 Reference Guide

Interpreting Private Company WACC

Private company WACC is almost always higher than comparable public company WACC due to the size, illiquidity, and specific-risk premiums added to the cost of equity.

8–12%

Low — Large Private

Large, established private companies with strong cash flows, diversified customers, and experienced management. Minimal private-company premiums needed.

12–18%

Moderate — Mid-Market

Typical mid-market private business. Reflects size and illiquidity premiums of 3–6%. Most business valuations and M&A transactions fall in this range.

18–25%

High — Small Business

Smaller private businesses with key-person dependency, customer concentration, or limited track record. High premiums fully justified at this level.

Above 25%

Very High — Early Stage

Early-stage companies, startups, or highly risky businesses. WACC above 25% is common in venture capital and distressed business contexts.

FAQ

Frequently Asked Questions

Everything you need to know about calculating WACC for private companies.

Why is private company WACC higher than public company WACC?+
Private companies face three additional layers of risk that public companies do not: (1) Size risk — smaller companies historically earn lower risk-adjusted returns and have less access to capital markets; (2) Illiquidity risk — private shares cannot be bought or sold easily, so investors demand a premium for the inability to exit quickly; (3) Company-specific risk — private companies often have key-person dependency, limited management depth, and customer concentration that creates idiosyncratic risk not captured by beta.
What Beta should I use for a private company?+
Private companies have no observable market beta. The best approach is to use an industry beta from Damodaran Online (pages.stern.nyu.edu/~adamodar). Select the industry closest to your company and use the unlevered (asset) beta. You can then relevered it for your company's specific debt-to-equity ratio using the formula: Levered Beta = Unlevered Beta x (1 + (1 - tax rate) x D/E). Typical unlevered betas range from 0.4 (utilities, food) to 1.5+ (technology, biotech).
What is the size premium and how do I estimate it?+
The size premium (SP) is the additional return that investors historically demand for investing in small companies, over and above what CAPM predicts. The most widely used source is the Duff and Phelps (KPMG) Cost of Capital Navigator. As a rule of thumb: companies with enterprise value over $100M might use a 2–3% premium; $10M–$100M typically 3–5%; under $10M often 5–8%. Be careful not to double-count if you are already using a beta that incorporates small-company risk.
What is the illiquidity premium?+
The illiquidity premium reflects the fact that private shares cannot be sold as quickly or easily as publicly traded shares. Studies of restricted stock discounts and pre-IPO transactions suggest that illiquidity adds approximately 2–5% to the required return for typical established private companies. Early-stage companies, family-held businesses, or companies with shareholder transfer restrictions may warrant a premium at the higher end or beyond. The appropriate level depends on the specific exit timeline and investor expectations.
What is company-specific risk premium (CSRP)?+
CSRP captures risks unique to the specific company that are not reflected in the industry beta or size premium. Common sources include: heavy dependence on a single owner or key employee, reliance on one or two major customers (customer concentration), limited operating history, unproven management team, ongoing litigation, or unusual operational risks. Most business appraisers apply 0–5%, with 0% for well-diversified well-managed businesses and 3–5% for businesses with significant specific risks.
How do I value equity for a private company in WACC?+
WACC requires market values for weights, which is circular for a private company (you need WACC to value equity, but you need equity value to calculate WACC). Practitioners handle this in several ways: (1) use book value of equity as a starting proxy; (2) use a recent transaction price if available; (3) use an industry revenue or EBITDA multiple to estimate enterprise value then subtract debt; or (4) use an iterative approach — start with an assumption, calculate WACC, apply it to get equity value, then update the assumption until it converges.
Should I use 0% tax rate for pass-through entities?+
If the private company is structured as an S-Corporation, LLC, or partnership that passes taxes through to owners rather than paying corporate tax, then there is no corporate-level tax shield on debt. In this case, entering 0% for the tax rate is technically correct for the debt tax shield calculation. However, in practice, business appraisers sometimes apply a notional tax rate to make the company comparable to C-corporations. The right approach depends on the purpose of the valuation and should be discussed with your advisor.
What is a typical WACC range for a private business?+
Private company WACC varies widely by size, industry, and risk profile. As a general guide: large private companies (enterprise value above $100M) typically range from 10–14%; mid-market businesses ($10M–$100M EV) from 14–20%; small businesses (below $10M EV) from 18–28%; and early-stage or startups from 25–50%+. These ranges are significantly higher than comparable public companies, reflecting the premiums added for size, illiquidity, and specific risk.
Can I use this calculator for a DCF valuation of a private business?+
Yes — the private company WACC from this calculator is designed for use as the discount rate in a DCF (Discounted Cash Flow) valuation. It is the rate you should use to discount projected free cash flows to arrive at enterprise value. Make sure your cash flow projections are on an unlevered (debt-free) basis if using WACC as the discount rate. If your company is highly leveraged or the capital structure is expected to change significantly, an Adjusted Present Value (APV) method may be more appropriate than a standard WACC-based DCF.
More Tools

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WACC with Beta (CAPM)

Enter a Beta and automatically calculate your cost of equity via CAPM. Ideal starting point before applying private company premiums.

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Standard WACC Calculator

Quick 2-component WACC calculator for equity and debt. Best for public companies or simple private company estimates.

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WACC with Preferred Stock

Full 3-component WACC including preferred stock. Relevant for PE-backed private companies with preferred equity structures.

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Why Private Company WACC is Different

The standard WACC formula — developed primarily for publicly traded companies — significantly underestimates the true cost of capital for private businesses. Public companies benefit from liquid, observable stock prices, broad investor bases, and the diversification benefits that come with being traded on an exchange. Private companies have none of these advantages.

The modified private company WACC formula adds three adjustments directly to the cost of equity:

Ke* = Rf + (Beta x ERP)
     + SP + ILP + CSRP

Where SP is the size premium, ILP is the illiquidity premium, and CSRP is the company-specific risk premium. The adjusted Ke* is then used in the standard WACC calculation alongside the after-tax cost of debt.

The Three Private Company Adjustments Explained

Size Premium (SP): Decades of academic research, most notably the work underlying the Duff and Phelps Cost of Capital Navigator, shows that smaller companies generate higher historical returns than large-cap stocks. This implies investors demand higher expected returns for small company investments. The size premium typically ranges from 2–3% for larger private companies to 5–8% for very small businesses.

Illiquidity Premium (ILP): Private shares cannot be sold at will. When an investor needs liquidity, they cannot simply call a broker. Studies of restricted stock discounts, pre-IPO transactions, and DLOM (Discount for Lack of Marketability) research consistently show that investors require an additional 2–5% return to compensate for this illiquidity. Businesses with formal shareholder agreements that restrict transfers may warrant higher premiums.

Company-Specific Risk Premium (CSRP): Beta and industry risk capture systematic, market-wide risk. But private companies often carry substantial idiosyncratic risk — a business that depends entirely on one founder, has 70% of revenue from a single customer, or lacks documented processes carries risks that beta cannot measure. CSRP of 0–5% captures these factors and should be determined based on careful analysis of the specific business.

Finding Beta for a Private Company

Since private companies are not traded on exchanges, they have no observable market beta. The standard approach is to identify a set of publicly traded comparable companies in the same industry, calculate their average unlevered (asset) beta, and apply it to the private company. The unlevered beta removes the effect of each comparable company's unique capital structure, giving a pure measure of business risk.

The best free source for industry betas is Professor Aswath Damodaran's website at NYU Stern (pages.stern.nyu.edu/~adamodar), which publishes updated industry beta tables annually. Select the industry that most closely matches the private company's primary business activity. If the company operates across multiple industries, a weighted average of relevant industry betas is appropriate.

Using Private Company WACC in a DCF

The primary use of private company WACC is as the discount rate in a Discounted Cash Flow (DCF) valuation. The WACC represents the minimum return the business must generate to satisfy all capital providers — equity holders and lenders — and therefore the rate at which future cash flows should be discounted to determine their present value today.

A common pitfall is the circular reference: WACC requires market value of equity for the capital structure weights, but you need WACC to calculate equity value via DCF. Practitioners handle this iteratively — starting with book value or a rough estimate, calculating WACC, running the DCF, updating the equity value, and repeating until the inputs and outputs converge, usually within two or three iterations.

Premium Reference by Company Size

Company Size (EV) Size Premium Illiquidity Total vs. Public WACC
Large ($100M+) 1–3% 1–2% +2–5%
Mid-Market ($10M–$100M) 3–5% 2–4% +5–9%
Small ($1M–$10M) 5–7% 3–5% +8–12%
Micro (Below $1M) 6–10% 4–8% +10–18%