How to calculate the valuation of pre-revenue startups

Are you a pre-revenue startup planning to raise funds? Then this blog post is a perfect fit for you because understanding your valuation is a key first step. It’ll boost your fundraising confidence, help you impress your investors and prepare you for future funding rounds.

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The role of valuation in fundraising

In many ways, valuation is the backbone of your company. It tells you and the outside world how much your company is worth. Your valuation should represent a holistic view of your company's potential, considering factors like market size, revenue projections, strength of your leadership team and financial health. Your magic valuation number establishes a baseline for negotiating with investors, directly influencing share ownership of existing shareholders which is a crucial indicator for future investors.

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When preparing for an investment round, remember that your equity dilution is typically proportional to the funds you secure based on your valuation. For example, seeking $4 million for a 25% equity stake implies a $16 million valuation. Adopting a flexible approach to valuation, with room for negotiation, is advisable.

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Founders need to know that they'll have to give up at least 10-20% of the company with each investment round. It's wise to aim for a balance in fundraising—if entrepreneurs raise too much money, they risk over-diluting themselves, but if they acquire too little, they risk not having the resources to raise their next round efficiently (or to survive until the next round).

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Lastly, you should know that a new valuation should be done before each funding round. Valuations are derived from many factors, including leadership team strength, growth expectations, capital structure or market size. These factors inevitably evolve over time.

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How to fix your pre-revenue valuation

For pre-revenue startups, calculating valuation can be especially complicated. Our valuation calculator is here to simplify this process. It’s based on a scoreboard valuation method, comparing your startup against similarly staged startups in your industry and region. This method produces an estimated valuation using weighted market data from 2018 to 2024 and your self-assessment, considering aspects such as growth potential, team strength and product innovation.

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Discover your startup’s pre-money valuation with our calculator. This tool is especially designed for pre-revenue startups in Europe and the US, aiming to streamline the valuation process and enhance your fundraising strategy. Calculate your startup's pre-money valuation here.

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