We wanted to share with you a case study of Pre-Money Valuation for a pre-revenue tech startup that we conducted earlier. Here we have used weighted average of 3 prominent methods of Pre-money Valuation ( Scorecard Method, Risk Factor Summation Method and DCF Method) for arriving at the Pre-Money Valuation. The detailed calculations are discussed below.


Valuation is a process and a set of procedures used to estimate the present economic value of an enterprise (or business) or the present value of owner’s interest in a business (equity valuation). Business valuation or equity valuation can be used to determine the fair value of a business or the value of owner’s interest for a variety of reasons, including sale value, looking for new investor or lender, mergers & acquisitions, private placements etc.

A company’s pre-money valuation, or PMV, is its estimated value immediately prior to accepting funding (Valuation Calculator). Every time entrepreneurs seek to sell ownership in their company in exchange for financing, they must figure out PMV. It determines how much ownership existing shareholders or members will give investors in exchange for financing.


Startup valuation methods are the ways in which a startup business owner can work out the value of their company. These methods are important because more often than not startups are at a pre-revenue stage in their life-span so there aren’t any hard facts or revenue figures to base the value of the business on.

Because of this guesswork, an estimation has be to be used, which is why several startup valuation method frameworks have been invented to help a startup business more accurately guess their valuation.

Choosing a valuation method is one of the many confusing challenges with valuing early stage companies. There are several popular methods, each with their own approach on how to best determine how much a venture is worth.


When an early stage investor is trying to decide if they should make an investment into a startup he will guess what the likely exit size will be for that startup of a type, and in a specific industry. If a business owner has used methods to show their startup is worth a high amount that investor is likely to invest more into the company.

Using these methods or frameworks is also important because startup companies lack reliable past performance and predictable future performance that most established businesses use to estimate their value so having a way to guess a valuation is useful, even if it is all guesswork and predictions.

Ideally, a business owner should use several startup valuation methods to get the most accurate valuation possible. A business owner will want all of the valuations they come to from each of the methods to be within a sensible average.


Knowledge of other businesses in an industry, geographical location and critical risk factors are key to figuring out the value of a startup in the same industry and location, which is why several of the startup valuation methods include this. A startup valuation method needs to consider a lot of critical factors which a single method of valuation fails to address. So a valuation method that addresses all these factors by averaging the most prominent 3 method, giving a clear weights to each method based on current situation, would be ideal and realistic.

We strongly feel that the management should not stop with one approach as most angel investors will recommend using a blend of methods rather than relying on one method.  Investors and business owners will want to use several methods because no single method is useful all of the time. Multiple methods also help the business to determine an average valuation. Finding this average valuation is important because none of the startup valuation methods are scientifically or mathematically accurate; they are all based on predictions and guesswork.

Based on these key factors, we have adopted a method of valuation, called Weighted Average Valuation (WAV) Method that uses the Weighted Average of 3 prominent, proven and globally accepted methods of valuation, that are:

  1. Scorecard Method of valuation;
  2. Risk Factor Summation Method; and
  3. Discounted Cash Flow (DCF) Method.
Figures given are just for example.


The WAV Method takes into consideration the Weighted Average of 3 prominent methods of valuation that are:

The WAV method helps to cover several critical factors that are important for the valuation of a pre-revenue startup, such as:

Overall, a weighted average of the above key methods will help to realize a more realistic and accurate valuation for the business. A detailed analysis of rationale behind the selection of each methods of pre money valuation, used under the WAV method, has been discussed in some other blogs.

Dileep K Nair

Investment Banking/ Corporate Finance


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