How Early-Stage Startups Are Valued
Unlike mature corporations with decades of audited financial statements, valuing pre-revenue or early-stage tech startups involves a blend of financial modeling and risk assessment:
- Discounted Cash Flow (DCF): Projects future free cash flows over 5 years and discounts them back to present value using a Weighted Average Cost of Capital (WACC).
- EBITDA / Revenue Multiples: Benchmarks valuation against public or recently acquired competitors (e.g. SaaS trading at 6x ā 12x Annual Recurring Revenue).
- The Berkus Method: Assigns up to $500K for each of 5 foundational elements: Sound Idea, Prototype, Quality Management, Strategic Relationships, and Product Rollout.
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