Startup Valuation: 5 Methods Used by VCs

Startup Valuation: 5 Methods Used by VCs

Valuing a startup is fundamentally different from valuing a listed company. Without financial history or profits (often without revenue), classical methods (DCF, market multiples) are inapplicable. Here are the 5 methods VCs actually use.

Method 1: Venture Capital Method

The most widely used by VCs. It reasons backwards: start from the estimated exit value and work back to the present.

Steps

1. Estimate exit value in 5-7 years
2. Discount at the VC's required return rate
3. Subtract the round amount for pre-money

Concrete Example

• Projected Year 5 Revenue: €20M
• Exit Multiple: 8x revenue
• Exit Value: €160M
• Target VC IRR: 40%
• Post-money: 160 / (1.40)^5 = €29.8M
• Round size: €5M
• Pre-money: €24.8M
• VC dilution: 5 / 29.8 = 16.8%

Method 2: Scorecard Method (Bill Payne)

Compares the startup to similar startups that recently raised, adjusting by qualitative criteria.

Method 3: Berkus Method

Assigns value to 5 risk factors. Each factor can add up to €500K.

Ideal for pre-revenue startups at seed or pre-seed stage.

Method 4: Transaction Comparables

Analyze recent funding rounds of similar startups (same sector, stage, geography).

Typical Benchmarks (Europe, 2024-2026)

Method 5: Risk Factor Summation

Extension of Berkus with 12 risk factors scored from -2 to +2, each point worth ±€250K.

Which Method to Choose?

Best practice: Use 2-3 methods and triangulate. If they converge, your valuation is robust.

Conclusion

Startup valuation is not an exact science but an informed negotiation. These methods structure the negotiation and allow you to defend a valuation with solid arguments.

Our Startup Fundraising Excel template integrates VC Method and Scorecard with a dynamic cap table and 5-year financial projections.