How does valuation impact investment returns?

Valuation has an impact on investment returns at both ends.

Valuation at the start of an investment is reflected in the per share price that an investor pays to ultimately invest in a company (if investing directly in equity this would be the price paid per share or if investing using a convertible note or convertible security this would be the conversion price per share that applies).

Valuation at the end of an investment is reflected in the per share consideration that an investor receives in the case of a liquidity event like an IPO or merger or acquisition.

For example, if an investor originally invests in a company at $20 million post-money valuation with 10 million shares outstanding, that would be at approximately $2.00 per share. If that company is later acquired for $100 million, assuming no further share issuance, the proceeds per share would be approximately $10.00 per share. In that case the investor would earn $8.00 per share profit.