It doesn't. It's just an implied valuation based upon simplistic math. For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rat

It doesn't. It's just an implied valuation based upon simplistic math. For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rate (say its 7%). That investor makes good money if Twitter gets sold for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment going negative is quite low (relatively speaking), as would be the investor's cost of capital. I doubt the seed investors would look at such a sale positively. That is a grossly oversimplified version of what can happen (I have no idea what the terms of the real investment are - I'm just making up a for-instance). But the larger point is that you are correct, when you are dealing with preferred stock and other complicated securities, the implied valuation is a bit of a joke. You have to look at the value of all of the various tranches of securities, each of which is impacted by the others.