No single method values an early company reliably. Running several and comparing the results shows the range of defensible prices and exposes which assumptions drive the difference.
10 min read · Level 3
I would rather hold a wide, honest range than a precise number built on one method. Early-stage valuation is a negotiation informed by reasoning, and the most useful thing reasoning can give you is a clear sense of the price above which you should walk away.
Each early-stage method answers a different question:
Method Question it answers Main assumption VC method What can I pay and still reach my return? exit value and dilution Scorecard How does this compare with local deals? benchmark and comparisons Berkus What progress has reduced risk? caps per element Risk factor summation Which risks move the price? benchmark and ratings Revenue multiple What is similar revenue worth elsewhere? comparables and growth
Applied to one pre-revenue company:
VC method 4,000,000 pre-money Scorecard 4,620,000 Risk factor summation 3,250,000 Berkus 1,400,000
The range is 1,400,000 to 4,620,000. The average, about 3,317,500, is not more correct than any single result; it simply hides the disagreement.
(4,000,000 + 4,620,000 + 3,250,000 + 1,400,000) / 4 = 3,317,500.
Because the spread between methods is information. A low Berkus result alongside high scorecard and VC results says the company is being priced on market conditions and exit hopes more than on demonstrated progress.
A range also gives a negotiating position and a walk-away price grounded in reasoning rather than instinct.
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An investor sets their position.
Founder's asking pre-money: 6,000,000 Methods' range: 1,400,000 to 4,620,000 Investor's walk-away price: 4,500,000
To reach 6,000,000 under the VC method (1,000,000 round, 20x target), the post-money of 7,000,000 needs an exit of 7,000,000 x 20 / 50% = 280,000,000. The investor asks the founder what evidence supports an exit of that size. If there is none, the investor either negotiates or passes.
Averaging the methods and treating the average as the answer, instead of investigating why they disagree.
Use methods based on different assumptions.
Note the lowest and highest results.
Identify which assumption causes the largest differences.
Decide the highest price you would pay before negotiating.
Before agreeing a price for an early-stage investment.
Do not run methods mechanically to justify a price you have already decided to pay.
Professional valuation guidance for early-stage companies, including practice aids from accounting bodies on valuing privately held equity, commonly recommends considering more than one approach and reconciling the results rather than relying on a single method.
Reconciling several methods is standard professional practice, not an optional extra.
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