Berkus method

A pre-revenue valuation approach that assigns up to a fixed amount for each of five risk-reducing elements: sound idea, prototype, management team, strategic relationships and product rollout.

Example

Values of 400,000, 300,000, 450,000, 100,000 and 150,000 sum to a 1,400,000 pre-money.

Important

The caps per element should be updated for the local market and period.

Related terms

• Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
• Technical Risk — The risk that a technology will not work as intended, cannot be produced at scale, or takes much longer to develop than planned.

Lessons that explain it

• The Berkus method prices progress that reduces risk — The Berkus method assigns a value to each of five risk-reducing milestones a pre-revenue company has reached, with a fixed maximum for each, and adds them up. (9 min)

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