How to Value a Startup Company with No Revenue – 3 Ways

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

  • Three effective methods for valuing startups with no revenue are Comparable Transactions, Venture Capital, and Berkus.
  • Comparable Transactions values a startup by comparing it to similar companies, but this is not always feasible if your startup is in a new category or has a highly innovative product.
  • If this is the case, investors use either the VC method which involves evaluating a startup based on the future exit value and expected ROI of investors, or the Berkus method which involves assigning values to different aspects of a startup. 
  • You can aim to increase the valuation of your startup by having a compelling pitch deck, telling a great story, building your MVP right away, recruiting the best talent, and more.
  • If you’d like an accurate, reliable, and audit-defensible valuation for your startup, consider working with a startup valuation advisor like Eton.

How to Value a Startup Company with No Revenue: 3 Methods VCs & Angels Use

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:

  1. Comparable Transactions Method (or “Comps”) 
  2. Venture Capital Method 
  3. Berkus Method

Below, I dive deep into what each method is and how you can use it to calculate the value of your startup.

Method 1: Comparable Transactions Method 

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:

Step 1: Identify Comparable Companies

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.

Step 2: Establish Valuation Multiples

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:

  • User base growth
  • Monthly active users
  • Per patent filed

Step 3: Adjust Valuation Multiples

“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:

  • Industry Trends
  • Economic Conditions
  • Geographical Location
  • Market Sentiment
  • Unique Characteristics (Such as proprietary technology, intellectual property)
  • Regulatory Environment
  • Strategic Partnerships

Step 4: Apply Adjusted Industry Multiples

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.

Example Calculation for the Comparable Transactions Method

Step 1: Identify Comparable Companies

  • Identify three recently funded startups in the artificial intelligence for healthcare sector, which are at similar stages of development.

Step 2: Gather Data on Financial Metrics and Establish Multiples

  • The three comparable companies, let’s call them Startup A, Startup B, and Startup C, have the following user base and were valued at their last funding rounds with these multiples based on user base:
    • Startup A: 100,000 users, valued at $15 million
    • Startup B: 80,000 users, valued at $10 million
    • Startup C: 120,000 users, valued at $20 million
  • Calculate valuation multiples based on user base for each:
    • Multiple for A = Valuation / Users = $15M / 100,000 = $150 per user
    • Multiple for B = $10M / 80,000 = $125 per user
    • Multiple for C = $20M / 120,000 = $166.67 per user

Step 3: Calculate the Average Multiple

  • Average Multiple = (Multiple of A + Multiple of B + Multiple of C) / Number of Comparables
  • Average Multiple = ($150 + $125 + $166.67) / 3 ≈ $147.22 per user

Step 4: Adjust for Unique Factors

  • If your AI technology is more advanced (which could increase user engagement or retention), you might justify a higher multiple. Suppose you adjust your multiple to $160 per user due to advanced technology.
  • Adjusted Valuation = Adjusted Multiple × User Base
  • Adjusted Valuation = $160 per user × 90,000 users = $14.4 million

Final Estimated Valuation

  • Your startup’s valuation, after considering a more suitable multiple for its unique technology and market position, would be approximately $14.4 million.

There are three key downsides to the Comparables Method, however:

  1. It’s difficult to determine exactly what characteristics make your startup similar to another. Is it the product? Is it the market? Or is it the expertise of your team? This can lead to contention and inaccurate valuations.
  2. If your startup has an extremely innovative product or is in a new category that doesn’t exist yet, there might not be any comparable companies at all. This makes it difficult to determine the value of the startup.
  3. Even if you identify companies comparable to yours, it can be hard to find publicly available valuation information.

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

Method 2: Venture Capital Method

This 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:

Step 1: Estimate the Terminal Value

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. 

Step 2: Determine the Expected Return on Investment (ROI)

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.

Step 3: Calculate the Post-Money Valuation

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

Step 4: Calculate the Pre-Money Valuation

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

📖 Read more: Venture Capital Valuation: 7 VC Valuation Methods & the Process

Method 3: Berkus Method

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: 

Aspect 1: The Idea

  • Value: Up to $500,000
  • Explanation: A truly innovative idea that addresses a significant market need can significantly boost your valuation. Investors look for concepts that have the potential to disrupt the market or solve a big problem.

Aspect 2: Prototype

  • Value: Up to $500,000
  • Explanation: Having a working model or proof of concept shows that your idea is feasible. It reduces the risk for investors and demonstrates that your startup is capable of turning ideas into tangible products.

Aspect 3: Quality of the Team

  • Value: Up to $500,000
  • Explanation: A strong team with relevant experience and a successful track record can make a huge difference. Investors bet on people who can execute the business plan and navigate challenges effectively.

Aspect 4: Strategic Relationships

  • Value: Up to $500,000
  • Explanation: Existing partnerships or strategic alliances can accelerate your growth and open up new opportunities. These relationships add credibility and can significantly enhance your startup’s prospects.

Aspect 5: Product Rollout or Sales

  • Value: Up to $500,000
  • Explanation: A clear and realistic plan for bringing your product to market is crucial. Investors want to see that you have thought through your go-to-market strategy and have a timeline for achieving sales.

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: 

  • The Idea: $400,000
  • Prototype: $300,000
  • Quality of the Team: $500,000
  • Strategic Relationships: $200,000
  • Product Rollout or Sales: $400,000

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.

Why You Should Work With Eton 

Eton is a small team of Stanford Law lawyers and ex-Big-4 consultants who are committed to delivering accurate valuations at affordable prices and top-notch customer service.

Since 2010, we’ve delivered thousands of audit-defensible valuations for startups, mid-level businesses, and enterprises.

When you’re growing your startup, we know that accurate, compliant valuations are of critical importance to you. 

We also know you want them fast and at a reasonable cost—which is the promise we deliver.  

When you work with us, you’ll get: 

✅ Peace of Mind

You can fully trust us that we will not under- or over- value your startup and that we can deliver the valuation exactly when and how you need it. 

You can then use this valuation report to confidently negotiate with investors, raise the right amount of capital, or plan your exit or M&A strategies with precision.

(Don’t trust me? Trust our client!)

Debbie - eton testimonial

✅ Exceptional customer service

At Eton, client service isn’t just a practice; it’s our creed. We’re committed to consistently going beyond the norm to deliver exceptional value to every client.

And if there are any disputes on your valuation, we will defend these in court. This is a kind of “insurance” against challenges you might encounter along the way. 

Plus, you’ll get direct access to me, the CEO, throughout your engagement with us.

ross - eton testimonial

✅ A long-term partner

The startup clients that we’ve worked with have been with us for years, and we’ve helped them with valuations they need at every stage of their startup journey. Take a look at this testimonial:

Eton testimonial

Some of the past startup clients we’ve worked with include: 

  • Substack
  • Joby
  • Loci
  • Vestaboard, Inc
  • The Again Co.
  • Blueground
  • Oklo

You can find more testimonials from our past clients here.

Our Startup Valuation Process

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:

Eton's startup valuation process

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. 

Tips on How to Increase Your Pre-Revenue Valuation (According to Experts)

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: 

Build a Compelling Pitch Deck

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:

  • Problem-solving
  • Market size
  • Product
  • Technology
  • Team
  • Competition
  • Business model
  • Financial projections

Tell a Story

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.”

Get Multiple Investors Interested

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. 

Build your MVP right away

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.

Start Selling

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.”

Recruit the Best Talent

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.

Negotiate Based on Your Research 

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.”

Further Resources on How to Value a Pre-Revenue Startup

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.

  1. “Venture Deals” by Brad Feld and Jason Mendelson – a great “insider” book to understand how VCs think and work
  2. Q1 2024 Venture Financing Report – great resource to find how other companies like yours are valued at
  3. “Investment Valuation” by Aswath Damodaran – dubbed the “Bible” of valuations
  4. A Guide to Seed Fundraising by Geoff Ralston – the most comprehensive guide on seed fundraising on the internet

How to Value a Startup Company with No Revenue – FAQs

Have more questions about valuing a pre-revenue startup? I answered them below:

What is the rule of thumb for startup valuation?

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:

  • Estimate the Exit Value: Predict the value of your company at a future exit event (such as an acquisition or IPO) based on comparable companies.
  • Determine the Return on Investment (ROI): Decide the ROI that investors are seeking, often ranging from 10x to 30x for early-stage startups.
  • Calculate the Pre-Money Valuation: Divide the estimated exit value by the desired ROI to get the pre-money valuation.

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:

  1. Scorecard 
  2. Risk Factor Summation
  3. First Chicago 
  4. Cost-to-duplicate

For more mature startups with substantial revenue or earnings, these methods are suitable:

  1. Discounted Cash Flow (DCF)
  2. Market Comparables
  3. Precedent Transaction
  4. Real Options

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.

get in touch

Let's talk.

Schedule a free consultation meeting to discuss your valuation needs. 

President & CEO

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.

🤔Want tailored advice for your startup valuation? 🤔

This article is great for general guidance on the startup valuation process but unfortunately, it can’t be tailored to your unique circumstances. And when it comes to valuation, circumstance determines everything.

If you want personalized advice to help you navigate your startup valuation, get in touch with us here. We can provide advice specific to you over a call. 

Table of Contents

Related Posts

Schedule a Meeting