Valuing Pre-Revenue Startups Without Hand-Waving

The Pre-Revenue Challenge

How do you value a company with no revenue, no profits, and possibly no product? Traditional methods like DCF fall apart. Yet investors value pre-revenue companies every day.

Methods That Work

The Scorecard Method

Compare your startup to "average" funded startups in your region/stage, then adjust based on factors:

• Team strength (+/- 30%)
• Market size (+/- 25%)
• Product/technology (+/- 15%)
• Competitive environment (+/- 10%)
• Marketing/sales channels (+/- 10%)
• Need for additional investment (+/- 5%)

The Berkus Method

Assigns value ($0-500K each) for:

• Sound idea (basic value)
• Prototype (reduces technology risk)
• Quality management team (reduces execution risk)
• Strategic relationships (reduces market risk)
• Product rollout or sales (reduces production risk)

Maximum pre-revenue value: $2-2.5M

Risk Factor Summation

Start with average valuation, then adjust for 12 risk categories:

• Management, stage of business, legislation/political risk, manufacturing risk, sales/marketing risk, funding/capital raising risk, competition risk, technology risk, litigation risk, international risk, reputation risk, potential lucrative exit

Each factor: +$500K to -$500K adjustment.

Comparable Transactions

What have similar companies raised at similar stages? This is often the most practical approach.

Key comparables:

• Same industry/vertical
• Similar stage (idea, prototype, beta)
• Comparable team background
• Recent (within 18 months)

What Actually Drives Pre-Revenue Valuation

Team Track Record

Serial founders with exits command premiums. First-time founders start lower but can earn up with proof points.

Market Timing

Being early in a hot space (AI, climate, etc.) creates valuation tailwinds. Being late means proving differentiation.

Proof Points

Each milestone de-risks the business:

• Technical prototype working
• First design partner signed
• LOIs from potential customers
• Key hires made

Investor Dynamics

Sometimes valuation is simply what the market will bear. Hot deals get bid up. Proprietary deals can negotiate harder.

Next Steps

Need help structuring a pre-revenue valuation? Book a call to discuss the right approach for your situation.