Startup valuation is the price put on a young company when it raises money, set as a value for the whole business before the new money goes in. For a business with no profits, that number is agreed between the founder and the investor. The founder proposes it, the methods below supply the evidence for it, and the investor tests it against their own view.
A formula won’t produce the right answer for a company with no track record, so the founder’s work is building a case for a number and holding it in the negotiation.
I’ve raised £250m+ for my own companies and funded more than 750 businesses with over £1bn, so I’ve seen these negotiations as a founder, as an investor and as a lender.
Why DCF and Multiples Don’t Work for Early Startups
The methods used to value established businesses all need something a young company doesn’t have yet.
Discounted cash flow (DCF). A DCF forecasts the cash a business will produce over the coming years and discounts it back to a value today, using a rate that reflects the risk. For a company with no profits and no history, every input is an estimate: the revenue, the margins, the year it turns cash-positive and the discount rate itself. Small changes to any of them move the answer by millions, so the result tells an investor more about the founder’s assumptions than about the business.
Earnings and revenue multiples. A multiple values a business at its profit or revenue times a figure taken from similar companies that have sold or raised. With no profit there’s nothing to multiply. Revenue multiples start to work once there’s recurring revenue with a history behind it, which is why they show up more at Series A than at pre-seed. For a trading business with profits, the full set of methods is covered in business valuation.
Net assets. Valuing a business at what it owns, less what it owes, gives a floor. For a startup the assets are usually a laptop, some code and a brand, so this method leaves out the growth an investor is paying for.
What’s left is a price the founder sets and justifies, using evidence the investor can check.
“A valuation is a number from today multiplied by a story from tomorrow.”
Matt Haycox
Startup Valuation Methods Investors Use
Early-stage investors lean on a handful of methods. Each gives a range and a way of arguing for a point inside it, rather than an answer.
| Method | What it starts from | Best suited to | Main weakness |
|---|---|---|---|
| Comparable deals | Prices recently paid for similar companies | Every stage, and the main evidence before revenue | Good comparables can be hard to find |
| Scorecard | The typical pre-money valuation for the stage, sector and region | Pre-revenue companies | The scores are judgement calls |
| VC method | A future sale value and the return the investor needs | Companies with a forecast an investor will believe | Rests on a forecast years out |
| Valuation cap | A ceiling agreed on a SAFE or ASA | Rounds too early to price | Puts the valuation argument off until later |
Comparable Deals
Comparables are the prices investors recently paid for companies at the same stage, in the same sector and in a similar market. Where the numbers support nothing else, this is usually the evidence a valuation rests on, because it shows what investors have been willing to pay.
In the UK, much of this is public. A company that issues new shares has to file a return of allotment, form SH01, at Companies House within one month, and the form records the amount paid on each share, including the premium. Multiply that price by the number of shares in issue after the round and the result is the post-money valuation the investors paid.
Other sources include equity crowdfunding pitches, which publish their valuation, the deals an investor has done before, and market data. Carta’s figures, for example, put the median valuation cap at $35m on SAFEs larger than $2.5m in the second quarter of 2026, up 40% on a year earlier. That’s a US figure for large early rounds, and a founder raising £300,000 in Manchester or Dubai is comparing against a different market.
The Scorecard Method
The scorecard method values a pre-revenue company by comparing it with the typical company at its stage. It starts from the median pre-money valuation of recently funded pre-revenue companies in the same sector and region, then adjusts that figure up or down for how the company scores on a weighted list of factors.
A published version of the scorecard uses these weights, and each factor is scored against the average company, with 100% meaning average.
| Factor | Weight | Score against the average | Weighted result |
|---|---|---|---|
| Strength of the management team | 30% | 125% | 37.5% |
| Size of the opportunity | 25% | 150% | 37.5% |
| Product or technology | 15% | 100% | 15.0% |
| Competitive environment | 10% | 75% | 7.5% |
| Marketing, sales channels and partnerships | 10% | 80% | 8.0% |
| Need for further investment | 5% | 100% | 5.0% |
| Other factors | 5% | 100% | 5.0% |
| Total | 100% | 115.5% |
Say comparable pre-revenue companies in the sector have raised at a median pre-money valuation of £2m. This company scores 115.5% of the average, so the scorecard puts it at £2.31m. The investor will score the same factors and may land somewhere else.
The VC Method
The VC method works backwards from the sale of the company. Venture funds need a few investments to return many times their money, so they start with what the business could sell for and the return they need, and work out what they can pay today.
Here it is for a company raising £400,000. The exit value is divided by the return the investor needs, then reduced to allow for the investor’s stake being diluted if the company raises again.
| Step | Figure |
|---|---|
| Revenue forecast for year 5 | £10m |
| Sale multiple | 3 times revenue |
| Exit value | £30m |
| Return the investor needs | 10 times |
| Value today before allowing for later rounds | £3m |
| Share of the stake kept after later rounds | 60% |
| Post-money valuation | £1.8m |
| Investment | £400,000 |
| Pre-money valuation | £1.4m |
| Investor’s share | 22.2% |
The revenue in year 5 drives every other figure, so an investor who believes £6m instead of £10m will pay a lot less.
Valuation Caps on SAFEs and ASAs
Some companies are too early to price at all. A SAFE (simple agreement for future equity) in the US, or an advance subscription agreement (ASA) in the UK, lets the money go in now and turn into shares at the next priced round. The investor usually gets a valuation cap, the highest valuation their money can convert at, and sometimes a discount on the next round’s price.
A cap sets the most the early investor will pay per share, but nobody has agreed what the company is worth. More on these rounds is in pre-seed funding.
What Moves the Number
Each of these pushes a startup valuation up or down, and an investor will look at all of them.
- Traction. The progress so far, known as traction, ranks by how much the customer has committed: recurring paying customers, paying customers, signed contracts, paid pilots, pre-orders and deposits, letters of intent, free pilots with real use, a waitlist, then interest. Each step up the list gives the founder more to price against.
- The team. Who is building the business, what they’ve done before and whether they have the experience or access to customers this market needs.
- The size of the opportunity. Equity investors pay for how big the business could become and how fast it’s growing, more than for small, tidy numbers today.
- Competing interest. Two or more investors wanting in helps a high price hold, though the price still needs evidence behind it.
- Tax schemes. Under the UK’s SEIS and EIS, an investor can’t claim income tax relief if they and their associates hold more than 30% of the company’s shares or votes. A low valuation combined with a large cheque from one angel can push them over that line, so the valuation and the cheque size need to work together.
How to Set Your Ask
The founder sets the valuation and has to justify it, and the investor brings their own number, so the two negotiate. The order below is how to value a startup in a way that holds up when an investor tests it.
- Cost the plan. The amount comes first, built from what the money pays for and the milestone it reaches. The figures behind it come from your revenue forecast, which an investor will test line by line.
- Find the comparables. Recent rounds at the same stage, in the same sector and market, give the range.
- Run a method as backup. The scorecard suits a pre-revenue company. The VC method suits one with a forecast an investor will believe.
- Set the number and the reasoning. Pick a point in the range the evidence supports and write down why, so every question has an answer built from the business.
- Work out the walk-away position. Before the first meeting, the founder decides the lowest valuation and the terms they’d accept, and what they’d do if no investor meets them.
- Negotiate. Investors often push back on price. A founder who knows the comparables and their own reasoning can hold a number, trade it against terms, or walk away. The Negotiation Masterclass covers how to run that conversation.
The investor’s share then follows from the two numbers agreed. The post-money valuation is the pre-money valuation plus the investment, and the investor’s share is the investment divided by the post-money valuation. At a pre-money valuation of £1.4m, £400,000 buys 22.2% of the company.
Post-money valuation = pre-money valuation + investment
Investor’s share = investment ÷ post-money valuation
Valuation vs Terms: Which Matters More
Two offers at different valuations can leave the founder with very different amounts when the business is sold, because of the terms that come with the money.
The term that does the most to change that outcome is the liquidation preference, which pays the investor back before other shareholders when the company is sold. A 1x non-participating preference gives the investor either their money back or their percentage of the sale, whichever is larger. A 1x participating preference gives them their money back and then their percentage of what’s left.
Take 2 offers for £1m.
| Offer A | Offer B | |
|---|---|---|
| Pre-money valuation | £4m | £3m |
| Investor’s share | 20% | 25% |
| Liquidation preference | 1x participating | 1x non-participating |
| Investor receives on an £8m sale | £2.4m | £2m |
| Other shareholders receive on an £8m sale | £5.6m | £6m |
| Investor receives on a £3m sale | £1.4m | £1m |
| Other shareholders receive on a £3m sale | £1.6m | £2m |
Offer A has the higher valuation, and the founder and other shareholders do worse under it at both sale prices. On an £8m sale, the Offer A investor takes £1m back first and then 20% of the remaining £7m. Under Offer B, 25% of £8m is £2m, which is more than the £1m preference, so the investor takes their percentage and nothing more.
Other terms move the real price too, including the option pool, anti-dilution protection, board seats and consent rights. Comparing offers on what each shareholder receives at a few realistic sale prices shows which one is better.
Mistakes That Cap Your Next Round
Each round’s valuation becomes the starting point for the next, so a mistake in one round carries into the next raise.
Pricing above what the next round will support. If the next round is raised at a lower price per share, known as a down round, investors with anti-dilution protection receive extra shares and the founder’s holding falls further.
Raising more than the plan needs. Every pound raised is paid for in shares. Taking more because it was on offer means giving away more of the company than the plan called for.
Stacking SAFEs, ASAs and convertible notes without modelling them. Each one converts at the next round, so several caps and discounts together can cut the founder’s holding by more than any one of them suggests.
Leaving the option pool to the end. An investor who asks for a pool to be created before the money goes in takes it out of the existing shareholders’ holding. Agreeing its size alongside the valuation keeps the real price visible.
Records that don’t match. A share register that doesn’t agree with the Companies House filings, or untracked convertibles, slows due diligence and gives the investor reasons to revisit the price.
FAQs
How do you value a startup with no revenue?
A startup with no revenue is valued mainly on comparable deals, with a method such as the scorecard as backup. The founder proposes a pre-revenue valuation based on what similar companies have recently raised at, adjusts it for the team, the size of the opportunity and the progress so far, and negotiates from there.
What is a good valuation for a pre-seed startup?
There’s no standard figure for a pre-seed valuation. It depends on the sector, the market, the team, the traction and how much is being raised, so the right comparison is with recent rounds for similar companies in the same market.
Who decides a startup’s valuation?
The founder sets the valuation and has to justify it, and the investor decides whether to invest at that price. The investor brings their own number, and the valuation the round closes at is the one both agree.
Is a higher valuation always better?
No. A higher valuation means the founder sells less of the company for the same money, but terms such as a participating liquidation preference can leave the founder with less on a sale than a lower valuation on simpler terms. A valuation above what the next round supports can also lead to a down round.
Next read
If you’re about to name a valuation and want to hold it when the investor pushes back, the Negotiation Masterclass teaches the negotiation behind the number. If you’re earlier than that, join Capital Catalyst for free and learn how every type of funding works before you take any of it.
This is general information on how startup valuation works and isn’t investment advice.
