Aleksander Furgal Published: 17 Nov 2023 12 min to read

How to Value a Startup? Key Factors in Early-Stage and No Revenue Valuation

In Q1 2023 the valuation bubble burst. After peaking in 2022 at $2.5 million, the median U.S. seed round dipped to $2.3 million.

However, the seed stage has shown resilience and is beginning to recover; a trend attributed to continued investment by multi-stage funds and the high quality of companies able to raise funds during this period.

Often perceived as more art than science, valuing a startup requires a fine balance between analytical rigor and creative assessment. This is especially true for startups without stable revenue streams or established market positions.

For entrepreneurs, valuation is a gateway to securing capital. It forms the basis for negotiating with investors and plays a role in determining the equity you’ll give up in exchange for funding. As a founder, you’ll also need to consider the valuation when issuing shares to employees, board members, or advisors, ensuring that these transactions reflect the true worth of your business.

For investors and lenders, a startup’s valuation influences the risk assessment and potential return on investment. In the startup world, where financial histories are often limited or non-existent, valuation methods become even more nuanced, requiring a deep understanding of the market, the technology, the team, and the potential for growth and disruption.

In this article, we’ll delve into the different facets of startup valuation, particularly focusing on startups with no revenue or negative earnings. From assessing market size and potential to understanding the importance of team and vision, we’ll guide you through the complexities of this critical process.

6 leading valuation methods to know

Valuing a startup involves a range of methods, each with its own merits and limitations. Understanding them is crucial for both founders and investors to arrive at a fair and realistic valuation of a startup, especially in the absence of stable revenue streams.

Each of these startup valuation methods offers a different perspective on the startup’s value, and the choice of method often depends on the stage of the startup, the nature of its business, and the availability of data. In practice, a combination of these methods is often used to arrive at a more comprehensive valuation.

  • Berkus Approach: This method assesses a startup’s value based on five key success factors: basic value, technology, execution, strategic relationships in the core market, and production and sales. Each factor is assigned a monetary value, with the total valuation capped at a theoretical maximum. This approach is particularly suitable for early-stage startups without a clear revenue model, as it focuses on potential rather than current financial performance.
  • Cost-to-Duplicate Approach: This approach calculates the startup’s value based on the cost of duplicating it. It includes all costs and expenses associated with the startup and its product development, including physical assets. However, it has certain limitations, such as not considering the company’s future potential or intangible assets like brand value and patent rights.
  • Future Valuation Multiple Approach: This method focuses on estimating the return on investment that investors can expect in the future, usually within a five to ten-year timeframe. It involves projecting future sales growth and costs and applying a multiple to the appropriate metric to value the startup. This approach is useful for startups with high growth potential but limited current financial data.
  • Market Multiple Approach: This method values a startup by using recent acquisitions or transactions involving similar companies as benchmarks. The startup is valued using the market multiple derived from these transactions. This approach is particularly useful in industries where there are many comparable transactions.
  • Risk Factor Summation Approach: This approach values a startup by quantitatively considering all risks associated with the business that can affect the return on investment. It adjusts an initial estimated value based on the impact of various types of business risks, such as management, political, manufacturing, market competition, investment, technological, and legal risks.
  • Discounted Cash Flow (DCF) Method: The DCF method projects the startup’s future free cash flows and discounts them back to their present value using a discount rate. This rate reflects the high risk associated with investing in startups. The DCF method is particularly useful for startups with foreseeable future revenue streams and is widely used due to its focus on future profitability.


How to value a startup using comparable businesses (“Comps”)

One of the most effective and commonly used methods for valuing startups at an early stage or with no revenue is the Comparable Company Method (CCM), also known as the Market Approach, which involves a detailed analysis of similar companies.

Performing this method involves the following steps:

  • 1 Identifying comparable companies. The first step in the CCM is to identify publicly traded companies that are similar to your startup in industry, size, growth potential, and business model. These companies, known as ‘comparables’ or ‘peer companies’, serve as a benchmark for your valuation.
  • 2 Gathering financial data. After identifying comparable companies, collect their relevant financial data, such as revenue, earnings, EBITDA, and other performance metrics. This data forms the basis for comparison with your startup.
  • 3 Calculating valuation multiples. Valuation multiples are ratios that help compare a company’s financial metrics to its market value. Common multiples in the CCM include Price/Earnings (P/E), Price/Sales (P/S), Price/EBITDA (P/EBITDA), and Enterprise Value/Revenue (EV/Revenue). These multiples are derived from the financial data of comparable companies.
  • 4 Applying valuation multiples to your startup. Apply these valuation multiples to your startup’s financial metrics. This step involves some degree of estimation, especially for startups with limited financial history. The result is a relative valuation that aligns with current market standards.
  • 5 Selecting appropriate comparables. The accuracy of your valuation heavily depends on selecting the right comparables. The comparables should closely resemble your startup in terms of industry, growth prospects, size, and business model. The more similar they are to your startup, the more reliable the valuation results will be.
  • 6 Considering financial metrics. Choose financial metrics that best reflect your startup’s performance and growth potential. Common metrics for early-stage startups include revenue and EBITDA, while more mature companies might focus on earnings per share (EPS) and free cash flow.
  • 7 Addressing outliers. Be cautious of outliers among comparable companies, as they can skew valuation results. Excluding outliers or using median multiples can help mitigate the impact of these extreme values.
  • 8 Interpreting valuation results. Conduct sensitivity analysis to test the impact of different valuation multiples and financial metrics on the final valuation. This analysis will provide insights into potential risks and variations in your startup’s valuation.

# Supplementing CCM with other methods

The CCM, while valuable, has its limitations. It relies on publicly available data, which might not fully capture the unique aspects of your startup’s business model or growth potential.

Moreover, market conditions and investor sentiment can change, affecting the reliability of the valuation. Therefore, it is crucial to use the CCM as a starting point for valuation discussions with investors and not as the sole basis for your startup’s valuation.

To get a more comprehensive view of your startup’s worth, consider using the CCM in conjunction with other valuation methods, such as the Discounted Cash Flow (DCF) method or the Venture Capital Method (VC Method).

This combination of approaches can provide a more balanced and nuanced understanding of your startup’s value.

In our experience as a startup development studio, the most common misconception among founders is equating a startup’s potential with immediate high valuation, overlooking the nuances of market dynamics and investor expectations. We guide our clients to focus on sustainable growth and realistic market positioning, steering clear of overvaluation which can damage long-term credibility and investor relations. A successful valuation is a balance between ambitious foresight and pragmatic market insights. Mike Jackowski COO, ASPER BROTHERS Let's Talk


Key factors in early-stage valuation

Regardless of theoretical frameworks, evaluating an early-stage startup involves considering specific dimensions that collectively paint a picture of its potential and prospects.

This section delves into four critical areas. By examining them, you can gain a comprehensive view of the startup’s position and potential in the market.

I. Market Size and Potential

When you’re assessing the value of a startup, especially one without established revenue streams, understanding the market size and potential is indispensable.

The size of the market not only signifies the total revenue opportunity but also shapes the perceived growth potential of your startup. Investors are particularly interested in startups that are solving significant problems in large markets. A larger market size implies more significant growth and scaling opportunities, making your startup an attractive investment prospect.

# Influence of market trends on valuation

Current and emerging market trends can significantly impact your startup’s valuation. These trends can indicate the direction in which the market is moving, potential disruptions, and new opportunities.

Being aligned with positive market trends or having a solution for a market gap can increase the attractiveness and perceived value of your startup in the eyes of investors.

# Understanding market size

Market size can be looked at in two primary ways: the Total Addressable Market (TAM) and the Serviceable Available Market (SAM).

TAM represents the total revenue opportunity available if a startup captures the entire market; it’s a useful metric for understanding the upper limits of market potential. However, TAM often represents an optimistic scenario.

More realistically, SAM, which is the segment of TAM actually serviceable by your startup, gives a clearer picture of the market you can reasonably expect to capture.

# Using bottom-up market sizing

A bottom-up approach to market sizing can offer a more accurate picture for startups, especially those in niche markets.

This method involves estimating the number of potential customers and the revenue each customer could generate. It’s a meticulous process that requires understanding customer behavior, pricing strategy, and market penetration capabilities.


II. Growth Rate and Traction

For investors, the growth rate and traction of a startup are especially crucial indicators.

Understanding and effectively leveraging these metrics can make a notable difference in attracting investment and scaling your business.

# The role of traction

In the startup ecosystem, traction is often considered one of the most critical factors post-MVP (Minimum Viable Product) stage.

Demonstrating solid traction through revenue, active users, website traffic, or market adoption can put you ahead in the competitive landscape of startups. It signals to potential investors that your product or service is gaining momentum and acceptance in the market.

# Measuring growth rate

While traction is crucial, the rate and sustainability of your growth are equally important.

The growth rate, typically measured by the increase in revenues, sales, profits, or other metrics over time, is a primary indicator of a startup’s potential value. Higher growth rates generally correlate with higher valuations because they suggest a strong market demand and potential for substantial future returns. Investors are inclined to value startups with high growth rates more favorably, anticipating quicker scaling and greater profitability.

Sustainable month-on-month (MOM) growth is key, with a preference for rates above 10 percent. Flat or minimal growth over an extended period can raise concerns about your business’s market fit and long-term viability. Exceptional growth, such as more than 20 percent MOM, is particularly appealing.

However, excessively rapid growth can sometimes indicate over-investment or unsustainable practices, while prolonged growth can suggest a lack of competitive edge or market relevance. Startups need to balance growth with stability, avoiding volatile fluctuations that can be indicative of poor management or unstable market conditions.


III. Team and Vision

Team and vision play a fundamental role in valuation, especially in the absence of concrete financial data.

A strong team with a clear, well-communicated vision can significantly increase a startup’s appeal.

# Importance of the founding team

At the pre-seed and seed stages, when financial metrics are scarce or nonexistent, investors place immense value on the founding team’s experience, expertise, and commitment.

A competent and dedicated team provides assurance to investors regarding the effective execution of the startup’s vision and problem-solving capabilities. The team’s ability to navigate challenges, pivot when necessary, and drive the startup forward is critical in determining the potential success and, by extension, the valuation of the startup.

Forming a founding team that brings together diverse skills and relevant experience is especially important. This diversity ensures that different aspects of the business, from technical development to market strategy, are effectively managed. A team with a blend of complementary skills is more likely to create a robust and sustainable business model.

# The appeal of a strong vision

The vision of the startup, particularly how it addresses a market need and its scalability, is closely scrutinized during the investment process.

Startups that target growing markets with their unique, disruptive solutions are often more appealing to investors. These startups are perceived as having a higher potential for impressive returns on investment and a greater likelihood of capturing significant market share.

# Narrative is everything

However, having an innovative product or service will not help if you don’t convincingly communicate your vision.

Founders need to craft a narrative that clearly articulates the problem their startup addresses, the uniqueness of their solution, and how it fits into the larger market landscape. This narrative should highlight the startup’s competitive edge and its potential to disrupt or innovate within its industry.

Showing evidence of market interest and potential, such as customer feedback, early adopters, or industry recognition, can also serve as a validation of the startup’s vision and its resonance with the target market.


IV. Competitive Advantage and Differentiation

Establishing a competitive advantage is crucial for valuation, as it helps attract investors and achieve long-term success. Your startup’s ability to differentiate itself and maintain a competitive edge can significantly influence its market value.

A startup’s competitive advantage is not just about outperforming rivals. It’s about strategically positioning the startup in a way that maximizes its unique strengths and market opportunities.

# Differentiation and customers

Competitive advantage allows your startup to deliver superior value to customers, thereby increasing profits and gaining market share.

Factors contributing to a competitive advantage can include unique pricing models, innovative product features, exceptional customer service, brand recognition, and efficient distribution channels. A strong competitive advantage not only helps in capturing more customers but also in building their trust and loyalty.

# Differentiation and investors

A well-defined competitive advantage is also vital for attracting investors.

Investors are more inclined to put their money into businesses that demonstrate a clear edge over their competitors, as such companies are more likely to succeed in the long run. Your startup’s competitive advantage can be a deciding factor when assessing its potential for future growth and profitability.

# Challenges of high-competition industries

In industries with intense competition, startups may struggle to gain market share, which can lead to investors perceiving them as high-risk and valuing them lower.

Conversely, startups that offer unique products or services or have a significant competitive advantage are often valued higher than their peers. This is especially true for startups that disrupt traditional industries with limited competition, as they may be valued significantly higher due to their innovative approach.


Special considerations for zero-revenue startups

Valuing a startup with zero revenue is complex and involves various factors beyond just financial projections. Here are some important insights:

  • Beyond monetary metrics: For startups lacking a long history of revenue or earnings, valuation extends beyond mere financial figures. This includes considering the strength of the team, the innovation in the technology, and the probability of the leads in the pipeline. These factors contribute to a startup’s future revenue and cash flow potential.
  • Prototype and MVP: Having a Minimum Viable Product (MVP) or a working prototype can greatly increase a startup’s valuation. This demonstrates the team’s ability to turn ideas into reality and signals potential for growth.
  • Market disruption potential: Companies that have the potential to disrupt the market can attract significant valuations. The disruption factor signifies a startup’s ability to innovate and create a new market or transform existing ones.
  • Network effects: The network effect is the idea that the number of people using a product or service correlates with its value. Network effects have been a major value driver in technology startups such as Apple, Google, and Facebook and approximately 70% of the value creation in tech over the past two decades can be attributed to network effects. Incorporating network effects into your startup’s strategy creates a defensible position against competitors and contributes to long-term value creation.
  • Networking: Actively engaging with potential investors and the wider startup ecosystem not only increases the likelihood of securing funding but also provides opportunities for feedback, which can refine the startup’s approach and strategy. Networking with investors can lead to valuable insights that shape the startup’s trajectory and enhance its valuation prospects.


Tips for investor negotiations

For young and volatile startups, securing investment often hinges on the ability to negotiate and agree upon a valuation with investors. Your performance during negotiations can influence the decisions of angel investors and venture capital firms who are essential for scaling your business.

Below we have collected some useful tips for your negotiation process:

  • Founder’s valuation expectations: Founders should avoid stating a specific valuation price initially. Instead, they should indicate their expectation of a valuation within a normal range and shift the conversation to understand the VC’s perspective on market pricing. However, in certain scenarios, such as dealing with angel investors, strategic investors, or multiple investors in a “party round,” proposing a valuation could be effective.
  • Previous round valuation: Investors often inquire about the capital raised and the post-money valuation of the most recent funding round. This information helps them assess the company’s fit with their investment strategy and ownership targets. For instance, a VC firm might target a specific ownership percentage and thus only invest in companies raising within a certain pre-money range.
  • Potential returns for investors: Investors consider their target returns at different stages (e.g., 100x at pre-seed/seed, 10x at Series A, 4x at Series B) and evaluate whether the company can achieve a high enough exit valuation to meet these targets.
  • Perception of business and founder: The negotiation of valuation also depends on the business’s performance, demand from other investors, and the overall market environment. A positive perception and strong demand can lead to higher valuations.



The future of startup valuation remains dynamic, shaped by evolving market conditions, technological advancements, and changing investor sentiments. As the startup ecosystem continues to mature, both founders and investors will need to adapt to new valuation paradigms, emphasizing agility, innovation, and strategic foresight.

The importance of comprehensive evaluation, considering both traditional financial metrics and novel factors like market disruption and network effects, will be paramount. Looking ahead, the key to successful startup valuation will lie in balancing data-driven insights with visionary thinking, ready to navigate the ever-shifting landscapes of the business world.



Aleksander Furgal

Content Specialist



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