How to value your startup, even when you're pre-revenue
If you're running a startup, there will come a time when you'll want to know what it's worth. Maybe you’re thinking about raising capital or selling. Or maybe you’re just curious.
This question gets asked all the time, especially by founders of pre-revenue startups. So, how do you figure out what your startup is worth?
Let’s break down the most common ways people value startups, including the ways when you have no revenue yet.
3 ways to value your startup
There are three main ways for you to value your startup:
1. The Multiples Method: This approach values your startup by comparing it to similar companies in the market, using a tool called multiples. It’s a quick way to estimate value based on industry benchmarks.
2. Discounted Cash Flow: This method calculates the present value of future cash flows your business is expected to generate. This approach accounts for the time value of money and is ideal for startups with predictable cash flow projections.
3. The Cost Approach: This method values a startup by assessing the total cost to build the business from the ground up, including expenses for assets and development. It’s often used for early-stage startups without revenue or cash flow projections.
Each of these methods provides a different lens for evaluating your startup’s worth, and knowing how they work can help you choose the right one for your startup.
Let's take a closer look at each now.
1. The Multiples Method
The multiples method is the most common way to value a company, especially when there’s revenue involved.
It’s fairly straightforward: take your revenue and multiply it by a number—called a "multiple"—and voilà, that’s your valuation. Let’s say your company brings in $2 million in revenue, and the market gives you a 3x multiple. That means your company is worth $6 million.
But it’s not always that simple. Investors might calculate the multiple based on different types of revenue—either topline (total revenue) or bottom line (profits).
The most common approach, however, is to base the multiple on EBITDA, which stands for earnings before interest, taxes, depreciation, and amortisation.
It gives a clearer picture of how well your company is doing without the distractions of these expenses.
EBITDA is a good measure of a company’s operating performance because it removes non-operating distractions that can vary a lot between companies, making it easier to compare across different industries.
However, for startups, especially pre-revenue ones, EBITDA might not even exist or could be negative. In these cases, investors often look at growth metrics like user acquisition, market traction, or even projected revenue to decide what makes sense.
Multiples aren’t picked out of thin air; they’re usually based on what similar companies in your industry have sold for recently. It’s like selling a house: you look at comparable sales in your neighbourhood to estimate your home's value.
For startups, you check what other companies in your sector have sold for and apply a similar multiple to your revenue.
2. Discounted Cash Flow
Now, if you’re not into playing the multiples game, there’s another way to figure out your company’s worth: Discounted Cash Flow.
If multiples are based on market trends, the discounted cash flow method focuses on your company’s future. Instead of looking at similar companies, this method values your business based on how much money it’s expected to make in the future.
You start by projecting how much revenue your startup will bring in over the next three to five years.
Since we don’t know what will happen far into the future, projections rarely go beyond five years. You can add something called a “terminal value” to account for the startup’s value at the end of that time period.
Once you have your projections, you need to discount them – hence the name.
Investors value today’s money more than money you’ll make next year, and even less the further out you go.
So, each year’s projected revenue is “discounted” based on how far in the future it is. You add up these discounted cash flows to calculate your company’s value.
Discount rates are usually determined by the risk associated with your business. Startups, especially pre-revenue ones, are inherently riskier, so investors typically use higher discount rates for these businesses, which lowers the valuation.
Still, DCF is a great way to show investors you’ve got a handle on where your company is headed and what kind of returns they might expect.
3. The Cost Approach
The simplest valuation method is the cost approach.
Here's the idea, you ask yourself: if I were to rebuild this company from scratch, how much would it cost me?
This approach is most often used in industries with a lot of physical assets, like manufacturing or real estate. You add up the cost of all your assets – like inventory, equipment, or property – and that’s your company’s value.
Founders should also think about any unique resources they have—patents, trademarks, or code—that might make their startup more valuable than the cost of its physical assets suggests.
This method doesn’t really work for startups without significant assets.
If your company is mostly an idea, a service, and a few computers, it might undervalue what you’ve built. And certainly won't account for all your sweat equity and creativity.
But it’s still a useful way to get a baseline figure.
How to value a startup with no revenue?
Now, here’s where things get tricky. What if your startup hasn’t made a dollar yet?
Valuing a pre-revenue startup can feel like a guessing game, but it’s a necessary one if you’re trying to raise funds. The real goal here isn’t so much determining your startup’s value as it is figuring out how much of your company you’re willing to give up in exchange for investment.
Founders raising capital are often looking for between $1 million and $3 million in exchange for giving up 15–25% of their company.
You might hear people talk about “backing into” these numbers, meaning they start with how much they need to raise and work backwards to figure out the valuation. That means, if you’re raising $2 million, your company is probably worth around $8 million.
If your startup is pre-revenue, resist the temptation to calculate your value based on the time, money, and effort you’ve put in.
That’s a trap, and it almost always leads to undervaluing your business, which means you’ll either raise too little or give away too much of your company. Instead, focus on your future potential.
How to project future revenue
Investors don’t care much about where you are today. They want to know where you’ll be tomorrow. So build a financial model that projects out three to five years.
To do this, you’ll need to estimate your total addressable market (TAM)—the total revenue your startup could theoretically capture if it dominated the market.
You can refine this further by calculating your serviceable addressable market (SAM) and serviceable obtainable market (SOM), which reflect how much of that pie you can practically capture.
Most startups estimate they’ll capture 3-5% of their market, though that number could be higher or lower depending on your startup and industry.
With this in mind, create a financial model that shows how much revenue you’ll generate over the next few years, based on your market share.
Then, compare your projections to similar startups that have raised money or sold recently. This will give you a ballpark figure for your valuation when you start pitching investors.
Final thoughts
Here’s the deal: valuing a startup is more art than science, especially if you’re pre-revenue.
You need to ask ask yourself: how much money do I need to hit my next milestone? And how much equity am I willing to give up to get there?
Make sure the money you raise gives you enough runway to hit your goals. If you run out of cash before you achieve your first big milestone, you might find yourself back in the fundraising cycle sooner than you’d like.
If you really want to bump up your startup’s valuation, there’s one surefire way to make that happen: get more people interested.
The moment you’ve got multiple investors bidding on your startup, you create competition. And when competition enters the room, valuations climb. Even if you don’t plan to take money from every investor, just having those offers on the table puts you in a position of strength.
But watch out for overvaluing your company. A sky-high valuation might sound great in the short term, but it can make future fundraising rounds harder, especially if your company doesn’t grow as fast as investors expect.
So, while it’s tempting to put a big number on your startup, make sure it’s a number that works for you—and one that gets investors on board. Because, at the end of the day, your startup is worth exactly what someone’s willing to pay for it.
