Introduction

You can’t grow what you can’t price. In today’s tighter venture capital market, you need a big vision and numbers to back it up. That includes knowing your startup’s valuation.

Valuation helps investors understand your worth, but it also shapes:

• How much of your startup you give away
• How you benchmark progress
• How future deals unfold

For most founders, especially in earlier stages, calculating valuation feels like guesswork and storytelling. How do you arrive at a valuation that feels accurate and honest while still showing off your best assets?

This guide breaks down the most common pre-money (before receiving new investment) startup valuation methods. You’ll learn the formulas and times when it’s best to use each method and what to consider as you start your valuation journey.

TL;DR: Key Takeaways on calculating startup valuation

• Valuation is critical but complex. Startups need solid valuations to attract investors and determine equity dilution, but unlike established companies, they must rely heavily on future projections rather than historical data.
• Multiple methods exist for different stages.  This guide covers 10 valuation methods ranging from simple approaches like Berkus Method to more complex ones, like Discounted Cash Flow and Venture Capital methods.
• Use multiple methods for accuracy. Don't rely on just one calculation; running several different valuation methods provides better credibility with investors and helps stress-test your assumptions.
• Avoid common pitfalls. Key mistakes include using wrong comparables (like comparing to unicorns), overestimating market size, relying too heavily on projections without traction, and overvaluing team credentials.
• Ground valuations in reality. Balance optimism with realistic assessments by using actual traction data, finding appropriate market comparables, and focusing on achievable benchmarks rather than inflated projections.
• Know when to get expert help. While founders can handle basic valuations themselves, complex situations like major funding rounds or cap table issues warrant bringing in fractional CFOs, valuation consultants, or experienced advisors.

What is startup valuation, and why is it important?

Pre-money startup valuation is how much a startup is worth, or what its economic value is. Calculating a startup’s value depends on many factors. Your growth stage, traction, team, business model, audience, marketplace, industry — everything feeds into how much your startup is worth. This valuation is important for fundraising, as investors consider valuation when assessing a startup’s chance at success.

Established companies can calculate their valuation using historical data and earnings reports. Public companies even get validation from the market through stock prices and market capitalization values (though market cap and market value are different calculations). 

Basically, established companies have a deeper well of validated past information to support their value assertions. Startups do not.

That said, founders can still generate reliable value calculations, but you’ll lean more on future projections. Where could this company go, and how much might it make?

Angel investors, entrepreneurs, and institutional investors have developed various methodologies to support your valuation effort. As we walk through these methods, consider which options best fit your startup’s profile.

10 methods to calculate your startup’s valuation

There are myriad options for valuing your startup. But if you want a place to start, here are 10 of the most common valuation methods you can deploy right now:

• Berkus
• Scorecard
• Risk Factor Summation
• Decision Tree Valuation
• Discounted Cash Flow
• Venture Capital
• Comparable Transactions
• Earnings Multiple
• Human Capital Plus Market Value
• Cost-to-Duplicate

1. The Berkus Method: putting a dollar value on the fundamentals

 

The Berkus Method, developed by David Berkus, is a simple way to produce a valuation and help de-risk a startup as a business investment. To do that, the method assigns value to four (sometimes five) key company factors:

• Attractiveness of the core business to the buyer
• Good management team in place
• Strategic alliances of value
• Completed product or prototype
• Revenue (if you have any)

Traditionally, you can assign up to $500K of “value” to each factor. However, you can increase or decrease depending on external factors like lower costs of living in the Midwest or more competitive environments like Silicon Valley.

It’s a simple and intuitive process, but it’ll cap your valuation at $2M-$2.5M. That said, it does help align founders and investors and keep tabs on overall company risk.

2. Scorecard Method: benchmarking against other funded startups

The Scorecard Method (or the Bill Payne Method, named for its angel investor inventor) starts by researching the valuations of other startups like yours. You’ll compare your company against other angel-funded startups in your industry or geographic region and take the average valuation.

You’ll then analyze company-specific factors like:

• Your team’s experience
• How far along your product is
• Your traction to date
• Market size
• Competitive edge 

Each area gets a percentage weight. You’ll rate yourself in each area as better or worse than average, then multiply those ratings by the weights. Add the totals, and you get a final percentage.

Multiply your average valuation number by that final percentage, and you’ll have your valuation.

For instance, let’s say your valuation research comes up with an average of $3M. You rate your startup’s strengths and weaknesses and come up with a final percentage of 90%. $3M x 90% gets you a $2.7M valuation.

It’s imperfect, but it gives you and potential investors a structured, non-revenue way to discuss value.

3. Risk Factor Summation Method: adjusting for 12 common startup risks

The Risk Factor Summation method starts with a baseline valuation, usually an average valuation for startups in your industry. Then you apply 12 common risk categories to your startup, like competition, legislation, scalability, team strength, and financials. You’ll assess whether each point adds or removes value from your business:

• Low risks add value (+$250–$500K per category)
• Average risks zero out
• High risks subtract value (-$250–$500K per category)

For example, let’s say you start with a comparable valuation of $2M. You conduct your risk assessment and find:

• 3 low risks (+$750K)
• 2 high risks (-$500K)
• 7 average risks ($0)

Your final valuation would be: $2M + $750K - $500K = $2.25M

If you’re raising angel rounds, using Risk Factor Summation helps you approach risk with discipline and consistency. But investors may weigh each category differently, so expect some variation between funders.

4. Decision Tree Valuation: mapping out scenarios and probabilities

Decision tree analyses appear all across organizations to help assess scenarios and probabilities of success or failure. It’s basically the same for startup valuations: you map the paths your startup might take, estimate the value of each potential outcome, and assign them probabilities of happening. You use those probabilities to calculate your valuation.

For example, let’s say you’re running a medical device company. In the next two years, you face three possible outcomes:

Outcome	Probability	Value If True
FDA approval and market success	40%	$20M
FDA approval but slow adoption	30%	$10M
FDA rejection	30%	$0

 

Your valuation is: (0.40 × $20M) + (0.30 × $10M) + (0.30 × $0) 

Written out, that’s:

$8M + $3M + $0 = $11 million

This method gives you a solid foundation for long-term outcome modeling, which is especially important if you’re operating in an uncertain market. Investors love to see you consider multiple risk scenarios and your strategic mindset. 

But your trees can sprout a lot of branches, and it can get complicated quickly. Plus, you’re doing a bit of guesswork on probabilities. I wouldn’t stand this method up on its own — run at least one other method before bringing this valuation to funders.

5. Discounted Cash Flow Method: projecting future profits today

The Discounted Cash Flow (DCF) method values your startup based on how much money you expect to make in the future and what that money is worth in today’s currency. As such, this method works best for startups with predictable cash flows or those nearing profitability.

The DCF formula has you forecast cash flow for the next 5 to 10 years, pick a discount rate (how much business risk and time reduce future value), discount your cash flows, and add them together for an estimated value.

For example, let’s say your projected cash flow looks like this:

Year	Forecasted Cash Flow	Discount (20%)
1	$200,000	$166,667
2	$300,000	$208,333
3	$400,000	$231,481

 

Note that the discount rate accumulates over time to represent future risk and the time value of money. For each year, your formula is:

DCF = Cash Flow + (1 + r)^n

Where r is your discount rate and n is the year number.

Then, you total your discounted cash flows to find your valuation:

$166,667 + $208,333 + $231,481 = $606,481 valuation

DCF’s strength lies in its focus on future growth potential and your smart evaluation of future risk. However, you need accurate present and future cash flow data for a successful valuation.

6. Venture Capital Method: valuation by exit math

 

The Venture Capital method starts with the end and works backward. You project a likely exit value, then discount it back to a present value based on the ROI required to reach that exit.

For instance, let’s say an investor wants to 10x their money in 5 years. You estimate you could sell your startup for $100M by then.

So, how much should your company be worth after the investor invests?

$100M / 10x ROI = $10M post-money valuation

Let’s say this investor plans to invest $2M. How much is your company worth before they invest (aka pre-money)?

$10M post-money - $2M investment = $8M pre-money valuation

This method works best when you’re pitching to VC firms or planning larger Series A and B rounds. You root your valuation in your investor’s expectations — a big boon. But it often oversimplifies product-marketing timing and other milestones.

7. Comparable Transactions Method: what the market has already paid

The Comparable Transactions method values your startup based on what similar companies have recently raised or sold for. Those numbers anchor your valuation to the market’s realities.

Start by finding comparable startups based on stage, business model, industry, and geography. Identify what metrics those deals used. Common ones are:

• Revenue multiples
• EBITDA multiples
• User or customer metrics

Take those deal numbers and metrics, and adjust based on your startup’s performance. Don’t forget external factors, such as market conditions or traction level.

For example, you find three recent acquisitions of similar startups doing $1M ARR. Each was acquired for 4x to 5x revenue.

You have $800K in ARR, a strong team, and traction. Estimate your valuation:

Valuation = $800K x 4.5 = $3.6M

This method is best suited for later-stage startups with revenue and markets with active funding or acquisition histories. Private deals often happen without transparency, so you may not have perfect details. But if you have solid comps, it’s a fast and useful way to justify your valuation.

8. Earnings Multiple Method: revenue-backed valuation

The Earnings Multiple method is straightforward, especially if you’re profitable or close to it. You look at what your startup is already generating in revenue or earnings and apply a market-standard multiple.

Pick your metric (e.g., ARR, EBITDA), find the typical multiple for your industry or stage, and multiply.

For example, you run a SaaS startup with $1.2M ARR, and the SaaS industry’s average valuation multiple is 5x. Your valuation:

Valuation = $1.2MM x 5 = $6MM

This method gives you a fast, market-aligned estimate, grounded in real data. But you need to have revenue for it to work.

9. Human Capital Plus Market Value Method: factoring in the team, tech, and IP

If you’re light on revenue, you want a more holistic overview of your startup’s value to reach a good estimate. The Human Capital Plus Market Value method adjusts your valuation to account for:

• Team value, like proven founders, technical experts, or niche specialists
• IP and tech assets, like patents, codebases, or research outcomes
• Market signals, like comparable deals or investor interest
• Tangible assets, like equipment, hardware, or inventory (if you have any)

There’s no formula here; rather, you’re building a defensible case for your startup’s value even if you lack revenue.

For example, you’re an AI startup with:

• A founding team that includes a PhD researcher and a former Meta AI lead
• A proprietary machine learning model with two patents
• A secured pilot deal with a major healthcare system

Your potential and team credibility carry value and make you investable. If similar AI teams raise $5M to $8M, you could justify valuations in that range.

This method is best suited for founders with elite track records or startups with lots of valuable IP and technical depth. However, it’s incredibly subjective, so vet what you have diligently before approaching any investor. 

10. Cost-to-Duplicate Method: valuing what it takes to rebuild your startup

If someone tried to rebuild your startup from scratch, how much would it cost them? The Cost-to-Duplicate method uses what you’ve already invested as the basis for your valuation.

Calculate your value by totaling the costs to replicate your startup’s work so far:

• Tech stack or product development
• Engineering hours or contractor spend
• Equipment, hardware, or specialized tools
• IP filings or R&D investments
• Intangibles like the effort to recruit a high-quality team

For example, let’s say you have:

• A proprietary software platform using 800 developer hours ($200K)
• A custom machine learning model trained on an owned data set ($100K)
• Constructed a secure cloud architecture ($50K)
• Filed two patents ($25K)

Your total cost to duplicate is $375K, and that becomes your baseline valuation.

This method works great with IP or asset-driven startups, especially with custom builds or physical products. However, it doesn’t account for your future market potential, and it’s easy to overestimate effort and inflate your valuation.

What to avoid when self-valuing your startup

When you’re in the valuation weeds, you can run into a few snares along the way. Pay attention to these common traps that might lead to unrealistic valuations or unconvincing VC pitches.

• Using the wrong comps: Avoid basing your valuation on unicorns or public companies unless you’re truly in their league.

• Overestimating Total Addressable Market: Your market could be huge, but what’s realistically reachable in the next few years?

• Relying on pre-revenue hype: Excitement isn’t traction. Investors want proof of market activity, not promises.

• Misapplying valuation methods: Be honest about which methods work for your startup’s stage and financials. It’s okay to stay qualitative while you build.

• Ignoring dilution: Multimillion-dollar valuations sound great, until an investor takes 80% of your company after two rounds. Know what you’re giving away at that price.

• Not stress-testing assumptions: Founders are an optimistic bunch, but consider the pessimistic case, too. If one bad assumption crashes your model, that’s a red flag.

• Over-reliance on vanity metrics: Downloads, followers, and PR coverage look nice but aren’t the same as paying customers or sustainable growth.

How do you choose the right method(s) for calculating startup valuation?

When calculating startup valuation, it’s great to start with at least one method, but I also believe accuracy comes from running this process multiple times with different methods. It’s especially important to do that if you’re fundraising. Interested investors will challenge your numbers; be ready to answer them with multiple angles and approaches.

That’s what Woosung Chun, CFO of DualEntry, says worked well when his startup went through that process.

“We used the Berkus method to value our core assets — team, product traction, and market opportunity — then layered in comps based on similar startups in our space. We also took a hard look at our upcoming milestones and how much capital we'd realistically need before hitting product-market fit. That helped us reverse-engineer a valuation that was aligned with both our goals and investor expectations,” he told HubSpot for Startups. “At the earliest stages, you're not selling future cash flows — you're selling the credibility of your trajectory. Once we embraced that, fundraising got a lot smoother.”

Startup valuation challenges and how to solve them

Running these calculations will challenge your perception of your startup and force you to ask uncomfortable questions. Armor up your mind and get resilient before you begin.

That armor matters if you want accurate, investor-defendable numbers, because you’ll likely run into several common hurdles. Here are a few, and how you can change your approach to handle them.

Lack of market comparables

It might feel like your product is unique or that you’re a “category creator,” but market comparables are usually out there for almost everyone. Sometimes, you need to look at adjacent comps with startups using similar business models or risk profiles (even if they’re in a different vertical).

In some cases, you really do have something different. When that happens, you can still develop a solid valuation. Use cost-to-duplicate as a baseline: What would it cost another founder to recreate what you built? Or, mix a few qualitative methods like Berkus or Scorecard to develop some baseline data.

Mikey Moran, CEO of Private Label Extensions, suggested that new founders use the Scorecard method so they can lean into qualitative considerations in their early valuation figures. If you can find any transactions in similar spaces, that helps tremendously. Moran used this process with a founder he advised, who first approached him with a seven-figure valuation without comps.

“We started again with a Scorecard method, anchored to recent transactions in their space, and wound up getting more interest from investors at a lower valuation, simply because the math worked,” he said. “Founders need to worry less about how much they're worth and more about building the proof points that it is.”

Over-reliance on projections

Too much love for projections has sunk many an excited founder, as Kinga Edwards, CEO of Brainy Bees, has seen.

“Numbers don't impress unless they're grounded in actual traction,” she said. “But founders LOVE anchoring their valuation to a single big exit, or believing their own rosy projections before there's even a real pipeline.”

She shared a story about a seed-stage SaaS founder who based projections on a friend’s company’s valuation, ignoring major differences between marketplaces, product usefulness, and early traction. This founder started at an $8M self-valuation, but as investors passed and the runway ran out, $8MM became $1MM.

Edwards recommended running the Scorecard Method by yourself and with a brutally honest investor or operator friend to set a sturdier foundation for your numbers.

“If you anchor to what's real (your traction, your risks, your comps), you'll get better results,” she said. “It's as simple as that.”

Difficulty pricing intangible assets

It’s easy enough to count laptops or cash in the bank, but your business encompasses so much more. Yet it’s tough to estimate intangible assets like idea strength and market potential.

One area worth worrying over less? Pricing your team’s value. Linn Atiyeh, CEO of recruiting firm Bemana, has seen an over-reliance on valuing a team’s experience backfire.

“I've seen too many startups follow this exact playbook: secure a few marquee hires, then inflate their valuation based on perceived momentum rather than actual performance,” she said. “Yes, your workforce contributes to the value of your company — but in today's climate, that contribution is limited and volatile.”

She advised startups to focus on other aspects, like an idea’s strengths, traction, and market potential. That will serve you better when building an accurate valuation. 

“Don't anchor your valuation to the current team, no matter how impressive they are,” Atiyeh told HubSpot for Startups. “Talent can leave, and when it does, any value tied solely to their presence walks out the door with them.”

Balancing optimism with realism

Founders have to be optimistic about their startups — you don’t start a business expecting the worst. But being overly optimistic can warp your thinking and lead you to miss out on great opportunities.

It’s an error that Valentin Radu, CEO and founder of Omniconvert, has seen before.

“It's tempting to get swept up in optimism, but this mindset can mislead potential investors and damage their confidence,” he said. “I encourage founders to begin with achievable benchmarks and explore valuation strategies that suit their current phase, like the Berkus Method for young startups or revenue multiples if they've gained momentum.”

Startup valuation tools, templates, and resources

You don’t have to go on your valuation journey alone. There are plenty of tools and resources available to help you develop a well-reasoned, data-backed valuation. Just remember: these tools offer starting points; you control the valuation you bring to market.

Valuation tools and templates

• CalcXML: A free calculator that offers basic calculations to start your valuation journey. Bring your numbers, like EBITDA and anticipated rate of earnings growth, for full usefulness.
• Swipesum: This free valuation calculator lets you dive deeper into your inputs and metrics to get a solid number. It provides a list of datapoints used in those calculations, which is great transparency.
• Equidam: A solid paid validation tool for early-stage startups. It blends five methods to create a balanced number. Paying a little extra also gets you a valuation benchmarked against similar market entrants.

Funding data sources

You should base your valuation on contextualized data about your market and competitors when possible. Start with these sources:

• PitchBook and CB Insights offer private databases with funding and valuation trends that are searchable by industry and competitors.
• AngelList lets you explore startup valuations by stage or sector. The company works primarily with VC firms, so if you have a good VC partner already, ask them for access.
• Crunchbase Pro gives you high-level insights into comparable funding rounds from other startups. Crunchbase News also helps you stay apprised of movement in the market and new opportunities.

Most databases require paid access to receive detailed information, but you can usually glean limited data for free. Ask ecosystem partners like friendly VCs for access, too.

When to ask for help with calculating startup valuation

If you’re running valuation calculations just to get a sense of where your startup stands, you’re well-positioned to do that on your own. 

But if you are preparing for a major priced round, negotiating a down or flat round, or facing complex cap table situations, bring in expert help. 

A fractional CFO, valuation consultant, or VC advisor can bring thoughtful guidance and experience to help you develop a sturdier number ready for the marketplace. Paid online services like Carta can also help you manage cap tables and plan scenarios.

Startup valuations are only part of the story

The best valuations match your startup’s stage, traction, and market realities. It’s truly a mixture of art and science: You need a little storytelling magic alongside your hard data. None of these methods is perfect, but a valuation exercise helps you stay grounded and credible as you meet investors and build your startup.

Be ambitious but honest. Use data where you can, and clarity where you can’t. You know what you’re building is valuable; use these tools to show it.

Want to learn more about how startup fundraising is going now and how you can prepare to meet your market? Download our latest Startup Fundraising Report.

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