Pre-Revenue Startup Valuation Methods: The Six We Use

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Why your valuation matters

Pre-revenue startup valuation uses methods that don't need a sales history, like Berkus, Scorecard and Risk Factor Summation, alongside the VC method and two cash flow methods. We run all six, weight them, and blend them into one number that should sit inside the fair range for your stage.

Your valuation is the price of your company. Get it wrong and you either give away too much or scare off the people you need.

If you're raising money, the valuation decides how much of your company an investor gets for every $1 they put in. If you're selling, it's the number every offer starts from.

Early-stage companies are hard to value. Most have little or no revenue, so there's no track record to point to. That's why we never lean on one method. We use six, and we show our working for each one so you can check it.

Video 1Why valuations matterWhat you need to think about before you put a number on your company. From CrowdWise Academy. Open in a new tab

The process

How we get to one number

Every valuation we do follows the same four steps, in the same order. That way you can see where each part of your number comes from.

Find your stage
We score seven signs of progress, from your product to your unit economics. That tells us your stage, from pre-seed up to Series A.
Set your range
Each stage has five bands. Your band depends on your market and how you're doing in it. Stage and band give us a fair price range.
Run six methods
Each method looks at your company from a different angle. Each one lands on its own number.
Blend into one number
We weight the six results and add them up. The answer should sit inside your range. If it doesn't, we explain why.

How much each method counts

The six methods fall into three groups. These are our standard weights.

Internal50%

Berkus25%

Risk Factor Summation25%

External40%

Scorecard20%

VC method20%

Cash flow10%

Discounted cash flow5%

First Chicago5%

We use the same weights on every report, so one valuation can be compared with another. There's one exception. If you don't have revenue yet, the cash flow methods can give a number that doesn't mean much. Then we set them to 0%, spread their weight across the other four, and show them for reference only.

The methods

The six startup valuation methods, in plain English

Watch this first if you like to see things worked through. It explains how each method works and how to do each one. Then read on for the short version.

Video 2Each method, step by stepA breakdown of how all six methods work and how to do each one. From CrowdWise Academy. Open in a new tab

Internal methods

We score your company on its own merits.

1. The Berkus method

25%

Dave Berkus created this method in the mid-1990s. He wanted a starting value that didn't depend on the founder's forecasts, because at this stage forecasts are mostly guesses.

It puts a value on five things:

A sound idea
A working prototype
A strong management team
Strategic relationships
Product rollout or sales

Berkus capped the total at $2.5M. We scale the cap to your range instead: each of the five can earn up to a fifth of the top of your band. We score each one from 0 to 10, and the market and your industry can move the scores up or down.

2. Risk Factor Summation

25%

Every startup has risks to manage. This method lists 12 of them and scores each one from -2, a big risk, to +2, a real strength. We start from a base value for your stage. Each point then moves the value up or down by a set amount.

Management
Stage of business
Legislation and politics
Manufacturing
Sales and marketing
Funding and raising capital
Competition
Technology
Litigation
International
Reputation
Chance of a good exit

3. The Scorecard method

20%

Angel investors use this one more than almost any other. It's also called the Bill Payne method. We find companies like yours that have raised money in a similar market and region. Then we score you against each one.

Find what similar companies were worth when they raised.
Score your company against them on seven factors.
Multiply their value by your score.

Strength of the management team	30%
Size of the opportunity	20%
Product and technology	20%
Competition	15%
Marketing, sales and partnerships	5%
Need for more investment	5%
Other, like customer feedback	5%

A score of 1.0x means you're level with that company. Below 1.0x means you're behind it, and above means you're ahead.

4. The VC method

20%

Venture capital investors want a set return on their money, often 10 to 30 times what they put in. So they start at a future sale and work backwards.

Estimate what your company could sell for one day, using similar companies that were bought or went public.
Divide that by the return the investor needs. That's your post-money value.
Take away the amount you're raising. That's your pre-money value.

ExampleSimilar companies sold for $90M and the investor wants 25x. $90M ÷ 25 = $3.6M post-money. You raise $300K, so your pre-money value is $3.3M.

Investors may also plan for later funding rounds that will shrink their share, and adjust the number for that.

5. Discounted cash flow

A discounted cash flow, or DCF, works out what your future cash is worth today. Money in five years is worth less than money now, so each year's cash gets discounted. The further away it is, the bigger the discount.

DCF = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + ... + CFn / (1 + r)^n

CF1 is the cash flow in year one, CF2 in year two, and CFn in each year after. r is the discount rate.

If the DCF value is higher than the price, the deal looks good. If it's lower, an investor will want to dig deeper. It only works with a forecast you trust, which is why it carries so little weight for young companies.

6. The First Chicago method

This method runs a DCF for a best case, an average case and a worst case. Then it weights each result by how likely it is. Each case gets its own cash flows, its own end value and a discount rate that fits the risk.

Value = P1 × V1 + P2 × V2 + P3 × V3

P1, P2 and P3 are the chances of the best, average and worst case. V1, V2 and V3 are what each case is worth today.

Hands on

Try the model yourself

The best way to understand your number is to move the inputs and watch it change. Make your own copy of our framework, then watch the walkthrough below.

Google Sheet Our valuation framework

A practice copy to play with and edit. Make a copy first. When we value a company, the result sits on the first page of its own model.

Open the Sheet

WalkthroughHow to use the SheetA screen recording from our team that shows you around the framework, tab by tab. Open in a new tab

Your questions

Questions founders ask

How do you value a pre-revenue startup?

With no revenue there's no track record to price, so no single method is enough. We use six. Berkus and Risk Factor Summation score the company on its own merits. Scorecard and the VC method compare it with real deals. DCF and First Chicago value future cash, and we set them to 0% when there's no revenue yet. We weight the results and blend them into one number that should land inside the fair range for your stage.

What is the Berkus method of valuation?

The Berkus method was created by Dave Berkus in the mid-1990s to give an early company a starting value that doesn't rely on its forecasts. It puts a value on five things: a sound idea, a working prototype, a strong management team, strategic relationships, and product rollout or sales. Berkus capped the total at $2.5M. We scale the cap to your stage instead, so each of the five can earn up to a fifth of the top of your band.

Why are pre-revenue startup valuations so high?

They can look high because investors are pricing what the company could become, not what it earns today. The VC method shows how. An investor who wants 25x on their money starts from a possible sale and works back, so a $90M exit gives a $3.6M post-money value with no revenue at all. The number should still sit inside a fair range for the stage. If it doesn't, you need a reason an investor will accept.

Your report

What you'll get at the end

Once we're happy with the valuation, our team fills in your report. It walks through your stage and every method, with the sources behind each number. We walk you through it on a call before it goes anywhere else.