The Impact of Discount Rates on Tech Sector Valuations

In a market where venture capital deployment has tightened and growth expectations have been reset, the discount rate has emerged as the single most consequential variable in any valuation model. A 50-basis-point change in the weighted average cost of capital (WACC) can swing enterprise value by 10–15% for high-growth technology companies — making the assumption defensible or indefensible depending on the supporting analysis.

For founders navigating term sheets, understanding how valuation firms derive their discount rates is not an academic exercise. It is a negotiating imperative.

The risk-free rate, typically derived from the 10-year US Treasury yield, has risen materially from its 2021 lows. Combined with expanded equity risk premiums driven by market volatility, the base WACC for early-stage technology companies has increased by approximately 200–300 basis points since 2021. This means that the same business with identical projected cash flows is worth materially less today than it was two years ago — not because the business has changed, but because the cost of capital has.

Practically, this means founders should push valuation firms to disclose their equity risk premium assumptions explicitly. Any premium below 5.5% for an early-stage technology company as of early 2026 should be questioned. And any WACC below 12% for a pre-profit SaaS company warrants careful scrutiny — not because it is necessarily wrong, but because the assumption burden is high enough that it deserves explicit support.