What are the best tools to calculate a startup valuation?

Question

We're a pre-seed startup and currently working on our valuation before approaching investors. We already calculated our business case for the next 3-5 years. Any tools that could help us come up with a fair valuation? Or should we just use e.g. the DCF method?

jschveibinz · Accepted Answer

Here are a couple of methods that are fair and reasonable when entering into a negotiation:
1. Use a standard multiple on revenue for you industry, e.g. 3x for SaaS, conservatively estimate your revenue in 5 years (be realistic), and multiply. Then divide that result by 10, I.e. investor wants a 10x ROI, and that’s a good starting point for a valuation cap.
2. Modified Berkus: Start with a $2 million basis, then add up to $2 million based on relative experience of the team, up to $1 million for the status of the development/market readiness, up to $2 million for the sales pipeline, and up to $1 million for other factors. You can also add $1 million per $500k of revenue if you have it. That’s a good starting point.
3. Market: you can throw out a number based on what others are asking, but investors like me hate this approach for pre-seed companies.
4. You can use a SAFE and kick the can down the road.

1cvmask · Answer

Valuation is solely an art and a constant moving puck. It goes up and down based on funding cycles and regions. The easiest time to raise money is when there is zero revenue and lots and lots of revenue (or sometimes traction if the user is the potential product).
Here is a recent post on what some would think is very high valuations:
https://avc.com/2021/11/seed-rounds-at-100mm-post-money/