Last month, a founder I know got a term sheet at a €6M pre-money valuation. Two weeks earlier, another founder in the same sector, roughly the same stage, accepted €3.2M. Same product category. Similar traction. So what happened?
Nothing mysterious. The first founder had a story that mapped onto a number. The second had a spreadsheet and a hope. That gap — between what a startup is worth and what you can credibly argue it's worth before fundraising — is where most early-stage negotiations are won or lost. Here is how to work out your startup valuation before you walk into that room.
Key takeaways
- Pre-money valuation sets your share price; post-money = pre-money + new money raised. Everything else follows from that arithmetic.
- Pre-revenue companies are valued by method, not by multiple — Berkus, scorecard, or a comparable deal you can actually defend.
- Revenue-stage companies trade on ARR multiples, and the multiple swings hard on growth rate, retention, and gross margin.
- The 80/20, 50/100/500 rules are heuristics about allocation and ownership, not valuation formulas — use them as guardrails, not gospel.
- What you negotiate is not just the number: liquidation preference and option pool size can quietly cost you more than the headline valuation gains you.
How to value a startup before fundraising: the arithmetic that actually matters
Valuation is not a fact. It is a negotiated opinion, backed by evidence, that both sides can live with. Before you calculate anything, you need the two numbers everyone in the room will use.
Pre-money vs post-money: the only distinction that changes your bank balance
Pre-money is what your company is deemed worth immediately before new money lands. Post-money is pre-money plus the amount raised. Investor ownership is new money divided by post-money.
Take a €4M pre-money round raising €1M. Post-money = €5M. The investor owns €1M / €5M = 20%. Your founders' 100% becomes 80%. Sounds obvious — and yet I've watched two founders argue for an hour over a valuation only to discover they'd been comparing a pre-money number to a post-money number. One of them had essentially conceded 4 points of dilution by not reading carefully.
Why classic multiples collapse at the early stage
You cannot apply an EBITDA multiple to a company with no EBITDA. The whole machinery of comparables, discounted cash flow, and book value assumes a business with a track record. Pre-seed and seed companies have a hypothesis and some code. So the market substitutes proxies: team quality, market size, product defensibility, and evidence of demand. That is why two nearly identical startups get different numbers — the inputs are qualitative, and the negotiation is about how confidently you can defend them.
Startup valuation methods, ranked by usefulness in a real negotiation
There's no shortage of lists of startup valuation methods. Most of them are theoretical. These are the ones that survive contact with an actual term sheet.
The Berkus method — the pre-revenue workhorse
Dave Berkus's approach assigns a maximum value to five de-risking elements: sound idea, prototype, quality management team, strategic relationships, and product rollout or sales. Each element contributes a capped slice — in Berkus's original framing, up to roughly $500K each, giving a pre-revenue ceiling in the $2M range. I've used it as a conversation structure more than a valuation tool. When you walk an investor through those five buckets and can honestly tick four of them, the number becomes an output of a shared framework rather than a demand. That framing alone has been worth more to me than any spreadsheet.
Scorecard and comparable transactions
The scorecard method starts from the median pre-money valuation of comparable deals in your region and stage, then adjusts up or down on team, market, product, competition, and marketing. The catch? You need a credible median. Regional seed medians are roughly in the low single-digit millions in most European markets, but the dispersion is enormous — the median tells you almost nothing about any individual deal.
ARR multiples once you have revenue
For revenue-stage rounds, the market prices on ARR multiples. A company growing fast with strong net retention might command a high single-digit to low double-digit multiple of ARR; a slower grower with churn problems might get a low single-digit multiple or be pushed toward a flat or down round. Here's the thing: the multiple is not a market constant. It's a function of growth rate, net revenue retention, gross margin, and capital efficiency. Two companies with the same ARR can be worth 3x apart.
| Stage | Primary valuation basis | What moves the number most |
|---|---|---|
| Pre-seed | Berkus, scorecard, founder track record | Team and market size |
| Seed | Scorecard + comparable deals | Early traction signal, defensibility |
| Series A | ARR multiple | Growth rate, net retention |
| Series B+ | ARR multiple, path to profitability | Unit economics, capital efficiency |
What is the 80/20 rule for startups, and do the 50/100/500 rules hold up?
Founders love a rule of thumb because it turns an uncomfortable negotiation into arithmetic. Some of these rules are useful. Some are folklore dressed as law.
What is the 80/20 rule for startups?
It gets applied to at least three different things, which is why it confuses people. In growth terms, roughly 80% of your results come from 20% of your features or channels — a useful prioritisation principle. In fundraising terms, the guideline is that you should be prepared to give up around 20% of your company per financing round, keeping dilution manageable across rounds. It's not a valuation formula, but it is a sanity check: if an offer requires you to give away 35% at seed, you're either over-raising or under-valued.
What is the 50/100/500 rule startup?
This one is a pricing heuristic rather than a valuation one. It's typically framed as tiers: around $50/month for a basic self-serve product, $100/month for a mid-tier with more features, and $500/month and up for a premium or team tier. The logic is psychological — price points that feel natural to buyers at each commitment level. It has nothing to do with what your company is worth, but it does affect your ARR trajectory, which does. I've seen a SaaS company move its middle tier from $79 to $99 and take a small hit in conversion while growing revenue meaningfully — a reminder that pricing and valuation are indirectly linked through revenue quality.
How much is a business worth with $1,000,000 in sales?
There is no single answer, and anyone who gives you one is guessing. What matters is the nature of that $1M in sales. If it's $1M in ARR from a SaaS product growing 100% year over year with 120% net revenue retention, the multiple could be far higher than if it's $1M in one-off services revenue with no recurring base. A rough market convention: businesses trade somewhere between 1x and 10x revenue depending on growth, margin, retention, and defensibility. The spread is the point. A $1M-revenue company can plausibly be valued anywhere from around $1M to well above $10M depending on those factors.
Is 1% equity in a start-up good?
It depends entirely on the outcome and the alternative. For a founding team member joining at an early stage with meaningful risk and below-market salary, 1% can be perfectly reasonable — if the company is genuinely on a path to a large exit. For a late-stage employee joining a well-funded company with a modest option grant, 1% of a large, well-capitalised business can be extraordinarily valuable. The real question is not the percentage but the expected value: 1% of a €50M exit is €500K; 5% of a company that never exits is zero. I'd take 1% of something with a credible path to nine figures over 10% of a business with no liquidity event in sight, every time.
The term sheet is where the real valuation is decided
You can win on headline number and still lose on terms. This is the part nobody explains properly before you sign.
Liquidation preference changes what you keep
A 1x non-participating liquidation preference means the investor gets their money back first from an exit, then converts to common if that's better. A 2x preference means they take double before you see a cent. On a modest exit, that difference can wipe out the founders' entire return. I once saw a deal where the founder celebrated a €12M pre-money against a competing €10M offer — but the higher offer carried a 2x participating preference. On a €15M exit, the founder would have taken home less than under the lower headline. Ask for the waterfall, not just the number.
The option pool shuffle
Most term sheets require you to set aside an employee option pool — commonly 10–15% — and crucially, it's often carved out of the pre-money, meaning it dilutes you, not the investor. A 12% pool on a €5M pre-money means effectively giving up valuation. Negotiate the pool size and when it's created. It's one of the few levers that is genuinely under-discussed.
A practical sequence for valuing your startup before you fundraise
Some founders build a model first and then look for investors. I'd do it in the other order: understand the market, then build the number.
- Identify three to five comparable recent deals in your sector and geography — not press releases, but what founders you know actually accepted
- Apply a method — Berkus or scorecard pre-revenue, ARR multiple once you have revenue
- Model dilution: pre-money → post-money → share price → your retained ownership → the option pool
- Run the waterfall on a realistic exit to see what you actually keep
- Prepare the one-slide story that justifies your number in five minutes or less
The founders who come in with a defensible number and a story behind it get taken seriously. The ones who come in with a wish get negotiated down.
The number is a story with evidence attached
Valuation isn't a formula you solve. It's an argument you make, and the quality of your argument determines whether you walk out with €3M or €6M. The founders who do this well treat the number as a hypothesis: here's what we're worth, here's the evidence, here's the risk we're acknowledging. That posture is worth more than any spreadsheet.
So before you open the conversation, ask yourself honestly: if an investor pushed back on every line of your valuation, could you defend it without flinching? If not, the work starts now.
