Startup Valuation
The estimated total worth of your company, used to determine how much equity investors receive.
Definition
Startup valuation is the process of estimating a company's total worth at a given point in time. For early-stage startups, valuation is determined more by market opportunity, team quality, and narrative than by financial performance. Common methods include revenue multiples (ARR × a multiple), the Berkus Method (for pre-revenue), comparable transactions, and Discounted Cash Flow (DCF). Pre-money valuation is the company's value before new investment; post-money is pre-money plus the new investment.
Why It Matters
Valuation determines how much equity you give up when raising capital. A $500K investment at a $5M pre-money valuation gives investors 10% of the company; at a $2.5M valuation, they get 20%. Overvaluing leads to down rounds and morale damage; undervaluing means unnecessary dilution. Understanding your valuation range gives leverage in negotiations.
Example
A SaaS startup with $800K ARR growing 15% month-over-month might justify a $10M pre-money valuation using a 12.5× ARR multiple.
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