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Early Stage Valuations


The question is: how can we evaluate the startup if we have not yet reached the stage where recurring revenues are the norm?

Early-stage startups are usually evaluated with qualitative approaches as we do not have a lot of quantitative data available. In this article, we will cover the most common qualitative/early-stage valuation methods. As always we value your feedback. Let us know which of these you have used in the past!

First a small disclaimer: Whilst valuation methods normally have a rather thorough and extensive history in academic publications, qualitative valuations do not. The following methods find their roots more in industry practices, than in actual valuation theory.

The Scorecard Method

The scorecard method was conceived by William H. Payne of Ohio TechAngels group when he faced the decade old question on how to value early-stage businesses. The valuation of the company depends on how its characteristics differ from the average of comparable companies. 

Different markets and different ecosystems have different levels of valuations, and this method takes into account different geographic benchmarks. The qualitative traits of each start-up are divided into 6 criteria and then they are given a score, in percentage, according to whether they are better or worse than the average company.

The Checklist Method

The creator of this method is David W. Berkus, one of the most prominent Californian angel investors and venture capitalists. The checklist method uses building blocks that sum up to a maximum pre-money valuation.

This maximum is composed of 5 different criteria that are weighted differently according to their importance. The company is awarded portions of these maximum criteria valuations according to how close its qualitative traits are to the most desirable ones. These values are then compared to the benchmark valuation in the analysed market.

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The Dilutive Method

The dilutive method helps to understand which percentage of the company investors will likely require in order to deploy the requested funds.

The dilutive method is not a methodology meant to pinpoint an accurate valuation, but it’s a tool that finds its usefulness in understanding which percentage of the company investors will likely require in order to deploy the requested funds. In this sense, this technique is totally dependent on the round size and, for venture or growth investments, normally ranges anywhere between 10% and 30%.

The VC Method

The Venture Capital Method, or VC method, is one of the most common approaches when valuing early-stage companies. How this works is by figuring out the return that an investor wants, in order to deploy cash into the business. 

The company will have a valuation that is therefore consistent with a predetermined return at the exit. The potential exit value is derived from the specific EV/EBITDA multiple of the benchmarked market. The final valuation equals this exit value discounted by a required return on investment (ROI). 

This depends on a number of factors, including the startup’s stage of development, as well as the kind of investors that might invest in the company. This method relies on both market multiples and the income a specific company will likely generate in the future and it could be considered both a Market and Income-based method.


We at Matters2 use a blend of 5 different methods (5+1 to be precise), and we modulate their weights according to the company’s stage… Want to know more? We can do a 3rd party valuation for you – no problem! Feel free to reach out any time 🙂

If you instead prefer to do your valuation yourself, stay tuned and we will soon introduce you to a partner of ours that helps you create a reliable valuation!

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