How to value an early-stage startup

For early-stage startups without revenue, I would use the Venture Capital method to assess future potential, or look at comparable companies that have gone through similar stages.

The Scorecard method is also helpful, as it involves evaluating the startup based on factors like the team and market, then adjusting the valuation accordingly.

Good question—and one that often comes up in interviews because it forces you to think outside the usual DCF and multiples box.

If a startup doesn’t have revenue yet, you obviously can’t value it with traditional methods like EBITDA multiples or a DCF based on cash flows. Instead, here’s how you’d want to approach it in a conversation:

First, acknowledge that without revenue, the valuation is based more on potential than performance. So you're looking at methods that are forward-looking or based on comparables in a broader sense.

Here are the common methods you can mention:

1. Comparable transactions or precedent funding rounds – You can look at similar early-stage startups that have raised money recently and see what valuation they got. You’d compare based on things like team experience, product stage, total addressable market, and traction (even if it's not revenue—things like users, waitlist size, partnerships, IP, etc.).
2. Scorecard or Berkus Method – These are used more in venture capital than in banking, but knowing them shows range. They assign value to factors like the team, product idea, market potential, and competitive landscape. They’re more qualitative, but useful when there’s little data.
3. VC method – This one’s helpful to know. You estimate what the company could be worth at exit (say in 5–7 years), based on comparable exits or public comps. Then you back-solve to today’s valuation using a high required return (like 30–50%) to reflect risk. It’s simple math but shows you’re thinking like an investor.
4. Cost to replicate – You can sometimes justify a valuation based on how much it would cost to build what the startup already has—like their technology, prototypes, or user base. This isn’t ideal but can act as a floor.

If you’re in an interview, it’s not about listing everything—it’s about showing you understand that early-stage valuation is about judgment, risk, and expectations, not just metrics. You could say something like:

“Well, if there’s no revenue yet, I’d focus on comparable funding rounds in the sector to get a sense of what investors are paying for similar risk profiles. I’d also look at potential exit values based on comps and then work backwards using the VC method. And while methods like Berkus aren’t typical in banking, they’re helpful for framing qualitative drivers that might influence early valuations.”

Keep it clear and show that you understand the difference between how a banker thinks and how a VC thinks—that’s the nuance they’re often looking for.