Hi, I’m Chris Walton, author of this guide and CEO of Eton Venture Services.
I’ve spent much of my career working as a corporate transactional lawyer at Gunderson Dettmer, becoming an expert in tax law & venture financing. Since starting Eton, I’ve completed thousands of business valuations for companies of all sizes.
Read my full bio here.
Valuations are tricky, even more so at the seed stage when startups are pre-revenue or have very little revenue.
Traditional valuation methods like Discounted Cash Flow or Revenue Multiples don’t work as there is no revenue figure to refer to.
Instead, investors look at qualitative factors and the future potential of a startup rather than financial metrics.
At Eton, my startup valuation firm, we’ve valued hundreds of startups alongside VCs, so we know the ins and outs of the process.
In this guide, I’ll take you through three key methods that venture capitalists (VCs) and angel investors use to value startup companies with no revenue.
Key Takeaways
There are multiple startup valuation methods, but not all of them will be suitable for pre-revenue startups.
From my experience, I’ve seen that investors and VCs typically use these three key methods when valuing pre-revenue startups:
Below, I dive deep into what each method is and how you can use it to calculate the value of your startup.
The Comparable Transactions Method or “Comps” involves valuing a startup by comparing it to similar companies in the same industry that have recently been valued or sold.
This method is used when there are enough similar companies to form a reliable comparison base.
VCs favor this method because it provides a market-based reference point.
Here’s a step-by-step to value a startup using Comp method for pre-revenue startups:
Select companies that were recently valued or acquired, with similar business models, technologies, and target markets but are in early stages like yours.
“You research and find out what similar companies to yours have recently been valued at,” says Brett Fox, Startup CEO Coach who has raised over $100 million in Venture Capital & Private Equity Funding.
Use databases like Crunchbase or AngelList to find startups at similar development stages.
Determine the multiples for each of the comparable companies selected.
Commonly, pre-revenue tech startups might look at multiple of the following depending on the nature of the startup:
“Appropriate adjustments need to be made to account for differences between the target company and transaction comparables,” writes Mayank W., Chartered Accountant & Legal Expert guiding startup founders to growth and success.
Make preliminary adjustments to these multiples based on the following factors:
Apply the refined multiples to your startup’s specific metrics to estimate the valuation.
Formula: Valuation = Adjusted Multiple × Your Metric (e.g., $500 per monthly active user × 10,000 users)
Choose a conservative approach by using the lower end of the multiple range to avoid unrealistic expectations.
Step 1: Identify Comparable Companies
Step 2: Gather Data on Financial Metrics and Establish Multiples
Step 3: Calculate the Average Multiple
Step 4: Adjust for Unique Factors
Final Estimated Valuation
There are three key downsides to the Comparables Method, however:
In these cases, VCs use two other methods, which I’ll go into in detail in the next section.
📖 Related read: SaaS Valuation: How to Value Your SaaS Company Like a VC
The Venture Capital valuation method focuses on estimating the future value of the company and working backwards to determine its present value, accounting for the risk and expected returns that venture capitalists anticipate.
“What the Venture Capital Method does is focus into the future, the possibility, the potential,” explains Alejandro Cremades, cofounder at Panthera Advisors and fundraising consultant.
“They’re focusing on the projections, those three or five-year projections, and putting a return or a potential multiple into that.”
Here’s a step-by-step guide to calculate your startup’s value based on the VC method:
Estimate the potential selling price of the startup in the future, typically at the point when the investors exit (usually 5-10 years).
“The most important task for an investor is to project the likely value for a company at the time at which the company may generate liquidity,” writes venture capitalist Alex Wilmerding in his book Term Sheets & Valuations.
This is often based on the expected revenues at that time and applying an industry-appropriate multiple.
However, experts say that “the size of an exit like an IPO or acquisition is impossible to predict”, but investors can still make some estimates.
Determine the expected return on investment that the VC desires.
For example, Fox shares the typical expected ROI as:
Investment Stage | Typical Expected ROI |
Seed Stage | 30X |
Series A | 10-30X |
This reflects the high risk associated with investing in startups, particularly those without revenue.
Using the desired ROI, calculate the post-money valuation by discounting the future exit value back to the present.
The formula used is:
Post-money valuation = Future Exit Value / Expected ROI
To find the pre-money valuation, subtract the amount of capital the VCs are investing now from the post-money valuation.
If the VC is investing $5 million, and the post-money valuation is calculated at $20 million, the pre-money valuation is:
Pre-money Valuation = Post-money Valuation − Investment Amount
Pre-money Valuation = $20M − $5M = $15M
The Berkus Method is a straightforward (and relatively easy) way to estimate the value of early-stage startups, especially those without any revenue yet.
It focuses on the key factors that can drive a startup’s future success, rather than relying on current financial projections.
When investors use this method, they essentially assign a value to key aspects of your startup. Then, they give a value to each of these factors. Here’s how it breaks down:
After assigning values to each factor, the total valuation gives a rough estimate of what your startup could be worth.
For example, let’s say your startup is evaluated like this:
Then, the total valuation will be:
Total Valuation = Value of the Idea + Value of the Prototype + Value of the Team + Value of Strategic Relationships + Value of Product Rollout
Total Valuation = $400,000 + $300,000 + $500,000 + $200,000 + $400,000 = $1,800,000
This means your startup would be valued at $1.8 million.
With the Berkus Method, investors can assess the potential of your startup in a structured way, even when there are no financial metrics to rely on.
💡Good to know. Investors typically use a combination of these three methods to come to the most accurate valuation.
I’ve explained the three key methods investors use to value startup companies without revenue, and how to calculate each.
But valuations are tricky and depend on many moving factors, such as market conditions, the competitive landscape, the strength of your team, and future growth potential.
Rather than attempting the valuation yourself and risking inaccuracies, or not having it done when you need it, my firm, Eton, can provide you with accurate, reliable, and audit-defensible valuations in 10 days or less at reasonable prices.
Working with a third-party valuation specialist is particularly useful for pre-revenue startups because it brings objectivity and credibility to a process that can often be influenced by bias or guesswork.
When you rely on a third-party expert, you get an accurate, unbiased assessment of your startup’s worth, based on real data and market insights. This is crucial when dealing with investors—they trust independent valuations more because they know it hasn’t been influenced by internal interests or over-optimism.
A third-party specialist also ensures your valuation is compliant with financial regulations and audit-ready, reducing the risk of errors that could lead to costly delays or complications later on. We can also fight your corner—looking for higher comparables that get you the valuation you deserve.
It gives you a solid foundation to negotiate funding, plan your growth, or strategize an exit, all backed by a credible valuation that stands up to scrutiny. Simply put, it’s about getting an honest, reliable number you can trust and that others will too.
My team at Eton provides affordable valuation services to startups like Perplexity, Joby and Pinterest. Reach out to us here to chat and we’ll walk you through our processes and pricing.
At Eton, we usually deliver business valuations in 10 days or less.
Provided we have all the necessary documents, we can even complete it in as short as a day for an extra fee.
Here’s how our business valuation process looks like typically:
If you’re ready to partner with us for your pre-revenue startup valuation, or if you’d like more information, please get in touch with me here.
Otherwise, please read on for tips on how to increase your valuation.
While the two methods above give you a good estimate of your pre-revenue startup valuation, there are multiple ways to increase your valuation further.
Here are key ways to do so:
The pitch deck template created by Silicon Valley legend Peter Thiel is highly recommended because it is structured to clearly present essential aspects of a startup:
Equally important as a good pitch deck, is to craft a compelling story.
Investors are not just investing in what your company is today, but in what it could become.
To get them excited about your vision, you need to paint a vivid picture.
“By nailing it on the storytelling, where you’re narrating what’s happening, what are you tackling, the why, the what, the how, people are going to get really excited to jump in and come in with you,” says Alxandro.
“It could get to a point where price is not an issue. They just want to be in.”
Getting interest from multiple investors, whether through storytelling or through other means, is a key way to get your value up.
“If there’s competition for your deal where multiple investors are fighting to get in, then you can negotiate for more,” says Fox.
However, he warns that having competition is very rare because investors will usually invest in only about one of 100 companies that they meet with.
Amidst tough competition, building your Minimum Viable Product (MVP) may give you an edge.
Cremades emphasizes the importance of launching your MVP early to gather market feedback and demonstrate your product’s appeal.
“You can use that as a way to tell the investor that what’s coming is really big, and… if they don’t jump in, then their ticket is going to be much, much more expensive down the line,” he says.
Just like building your product shows some actual evidence, Cremades also suggests to “get out there” and start selling “if you really believe that the revenue is something that is pulling you down on the valuation side”.
He adds, “You need to close customers, large accounts, whatever that is to continue to move the needle forward.
Because that traction, that progress around the sales and around the revenue is going to help that investor or that acquirer to understand that you are heading in the right direction, and maybe there are different multiples that they can use around your valuation.”
Just as product and sales might help, so would a good team in place.
The better your team is, the higher the valuation tends to be.
“If you have people that have done it before, that have really good bios, good CVs, then you’re going to be able to use that as a way for leverage to increase the overall valuation of the business,” Cremades explains.
Finally, don’t go first in the negotiation. Instead, Let the investors make their first offer.
And once they do so, you can negotiate based on comparable data or the valuation amount you’ve gotten from a trusted professional like Eton.
Say, “Actually, I’ve seen companies like ours priced in the range of X to Y,” or “Based on a third-party valuation, this is how much we’re worth.”
As SaaS Capital puts it: “Knowing where your business stands based on real-world data will give you an advantage in negotiating the best possible outcome for your company.”
I hope this guide has been helpful for figuring out how to value your startup. If you need any personalized advice, please feel free to reach out to me here.
I also highly recommend checking out these resources below to further understand the world of VCs and valuations.
Have more questions about valuing a pre-revenue startup? I answered them below:
For pre-revenue startups, the rule of thumb is to look at qualitative factors and future potential rather than financial metrics.
A common approach is the Venture Capital (VC) Method, which estimates your startup’s value based on its expected future exit value. Here’s how it works:
For example, if you expect your company to be worth $50 million in 5 years and investors are seeking a 10x return, your current pre-money valuation would be $5 million ($50 million / 10).
This method helps investors focus on your startup’s potential growth and market opportunities, providing a structured way to value your company even before generating revenue.
Other methods of valuing early-stage startups include:
For more mature startups with substantial revenue or earnings, these methods are suitable:
For detailed explanations of these methods and how to calculate them, please check out our startup valuation guide.
For startups with some revenue, a common benchmark is to value the company at multiple times its annual revenue.
This multiple can vary widely depending on the industry, growth potential, and market conditions.
In the tech and SaaS industries, for instance, startups might be valued at 5 to 10 times their annual revenue. I wrote more about SaaS valuation and you can find all the average multiples there.
However, for a startup with no revenue, investors will focus more on future potential, market size, and the strength of your business model rather than current revenue figures.
Startups need different valuations for different stages of their growth. Here are the most common ones:
1. 409A Valuation:
A 409A valuation determines the fair market value of a company’s common stock for tax purposes, particularly regarding stock options and other equity compensation plans.
2. Venture Capital (VC) Valuation:
Venture capital valuation is where venture capitalists assess the worth of a SaaS company when seeking investment.
3. Pre-Money and Post-Money Valuation:
Pre-money valuation is the company’s worth before new investment, while post-money valuation includes the new investment.
4. Mergers and Acquisitions (M&A) Valuation:
M&A valuation is important to determine a SaaS company’s worth in a potential merger or acquisition scenario.
5. Exit Valuation:
Exit valuation is conducted when preparing for an exit strategy, such as an initial public offering (IPO) or acquisition.
6. SaaS Valuation:
If you’re raising funds for your SaaS company, you might need a SaaS valuation done.
Schedule a free consultation meeting to discuss your valuation needs.
Chris co-founded Eton Venture Services in 2010 to provide mission-critical valuations to venture-based companies. He works closely with each client’s leadership team, board of directors, internal / external counsel, and independent auditor to develop detailed financial models and create accurate, audit-proof valuations.
