Founder explainer · 4 min read
How to value a pre-revenue startup: the main methods, with an example
A pre-revenue startup has no earnings or cash flow to value, so its price is mostly set by negotiation, informed by what similar companies recently raised at and by a few structured methods. The common ones are the scorecard, Berkus, risk factor summation and VC methods, plus comparables.
By the StartupReader editorial desk · Updated 2026-10-28 · Worked examples are illustrative
How to value a pre-revenue startup
- pre-money in our VC-method example
- ₹8 Cr
- post-money in our VC-method example
- ₹10 Cr
- target return in our VC-method example
- 20x
- valuation methods compared on this page
- 5
The methods at a glance
None gives a precise answer. Investors use them to structure judgement and sense-check a price, often combining several.
| Method | How it works | Often used by |
|---|---|---|
| Scorecard | Adjusts an average local valuation by how the startup compares on weighted factors | Angel investors |
| Berkus | Adds a capped amount for each major risk the startup has reduced | Angel investors |
| Risk factor summation | Moves a base valuation up or down for each of 12 risks | Angel investors |
| VC method | Works back from a possible exit value and the investor's target return | Venture funds |
| Comparables | Looks at what similar startups recently raised at | Almost everyone |
Scorecard, Berkus and risk factor summation
The scorecard method starts from the average pre-money valuation of comparable pre-revenue startups in the same region and sector, then scores the startup against that average on weighted factors. Commonly used weights are team 30%, size of the opportunity 25%, product and technology 15%, competition 10%, sales channels and partnerships 10%, need for further funding 5% and other factors 5%. A startup rated 125% on team and average on everything else scores 0.30 × 1.25 + 0.70 = 1.075, so it is valued 7.5% above the average.
The Berkus method, named after angel investor Dave Berkus, assigns a capped amount of value to each of five things that reduce risk: a sound idea, a prototype, a quality management team, strategic relationships, and product rollout or early sales. Investors adjust the original US-dollar caps for their own market.
Risk factor summation starts from a base valuation and rates 12 risks, including management, stage of the business, funding, competition, technology, legal and regulatory risk, and exit potential, each from −2 (very high risk) to +2 (very low risk). Each point adds or subtracts a fixed amount from the base.
The VC method, worked through
The VC method starts from the end. In this illustrative case, an investor is asked for ₹2 crore. It believes the company could sell for about ₹400 crore in six or seven years if things go well, and because many early investments return little or nothing, it wants 20x on this one. It also expects later rounds to halve its stake, a 50% retention rate.
The result is very sensitive to these inputs. If the investor expects a ₹200 crore exit instead, the post-money halves to ₹5 crore (₹200 crore ÷ 20 × 50%), and a ₹2 crore cheque would then need 40% of the company, usually far too much this early.
| Step | Calculation | Result |
|---|---|---|
| Value needed at exit | ₹2 Cr × 20 | ₹40 Cr |
| Stake needed at exit | ₹40 Cr ÷ ₹400 Cr | 10% |
| Stake needed today | 10% ÷ 50% retention | 20% |
| Post-money today | ₹2 Cr ÷ 20% | ₹10 Cr |
| Pre-money today | ₹10 Cr − ₹2 Cr | ₹8 Cr |
Comparables and round pricing
In practice, most pre-revenue rounds are priced by comparison with what similar startups, at the same stage, sector and market, recently raised at. Investors and founders who have raised recently are the best source, since not every early round is disclosed.
Founders also work backwards from the amount they need and the dilution they will accept. Raising ₹3 crore for 18 months of runway while selling about 15% implies a post-money valuation of ₹3 crore ÷ 15% = ₹20 crore, and a pre-money of ₹17 crore. Competition between interested investors moves the final price more than any formula.
India: the price and the valuation report
When an Indian company issues shares, company law and foreign-exchange rules, and in some cases tax rules, can require a formal valuation from a registered valuer, merchant banker or chartered accountant, depending on the type of issue and investor.
That fair-value report is a separate exercise from the negotiation, often using methods such as discounted cash flow, but the two need to line up: issuing shares at a price far from the reported value can have tax or regulatory consequences. Our 409A and FMV explainer covers how fair value is set for ESOPs. The rules change, so take advice before closing a round.
Questions founders ask
What is a typical valuation for a pre-revenue startup in India?
There is no standard figure. It depends on the sector, the team, the city, investor appetite and the wider market, and it changes from year to year. The best guide is what comparable startups raised at recently.
Which valuation method do investors actually use?
Most combine comparables with some version of the VC method. The scorecard, Berkus and risk factor methods are more common among angel investors as a structured check.
Can I use discounted cash flow for a pre-revenue startup?
You can, but with no revenue history the forecasts are guesses and small changes swing the result widely. Investors rarely rely on it this early, though formal valuation reports often use it.
Can I avoid setting a valuation at all?
Many early rounds use SAFEs or convertible notes, or in India instruments such as CCPS and convertible notes, that defer the price to the next round. A valuation cap still acts as a ceiling, so it works much like a valuation.
Is a higher pre-revenue valuation always better?
No. A price set well above what the company can grow into makes the next round harder and raises the risk of a down round.
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Keep exploring
- ExplainerPre-money vs post-money valuation, with examples →Pre-money is what a startup is worth before new investment; post-money adds the new money. How to calculate both, investors' ownership and the option pool effect.
- Explainer409A valuation explained, and India's ESOP equivalent →A 409A valuation sets the fair market value of a US startup's common stock for stock options. What it is, when you need one, and how ESOP valuation works in India.
- ExplainerAnti-dilution protection: full ratchet vs weighted average →Anti-dilution clauses protect investors if a later round is priced lower. Full ratchet vs broad- and narrow-based weighted average, with a down-round example.
- ExplainerWhat is a down round? Causes, effects and alternatives →A down round prices shares below the last round. Why they happen, how dilution, anti-dilution and ESOPs are affected, and the alternatives, with an example.
- CalculatorIRR & MOIC calculator →Enter yearly cash flows for a startup investment or fund to get the internal rate of return and the multiple on invested capital (MOIC).
- CalculatorBusiness valuation calculator →Estimate a company's value range from annual revenue and EBITDA using the multiples buyers and investors apply.
Written by the StartupReader editorial desk with AI assistance, from standard definitions and the examples worked through above; updated 2026-10-28. Rules on tax and foreign investment change, so check the official sources or an adviser before acting. Spotted something wrong? Tell us.