An early-stage startup with no profit cannot be valued on earnings and multiples like a mature business.
Its valuation is negotiated with the investor using two to four methods: Berkus, Scorecard, Risk Factor Summation and the venture capital method.
The formulas are simple: post-money = pre-money + investment, and the investor’s stake = investment ÷ post-money.
For example, €500,000 at a €2m pre-money gives a €2.5m post-money and 20% to the investor.
Below: the pre-money and post-money formulas, four valuation methods with calculators, one startup valued with all four and the results combined into a range, and what changes when an investor comes into a Spanish SL.
Valuing a mature, profitable business is a separate topic, covered in How to value a business for sale.
Pre-money vs post-money: formulas and the investor’s stake
- Pre-money — the company’s valuation before the round’s money.
- Post-money — the valuation after: pre-money + the investment.
- Investor’s stake = investment ÷ post-money.
- Price per share = pre-money ÷ number of shares before the round (including the option pool, if there is one).
Example: pre-money €2m, investment €500,000. Post-money is €2.5m, the investor gets 20%, and the founders’ stakes shrink by a fifth: from 100% to 80%.
Two details change the result more than founders expect.
The first is the option pool: if the investor requires it to be created before the round, the founders pay for it, and their “real” pre-money is lower than the headline.
The second is convertible loans and SAFEs: at the round they turn into shares and dilute the founders too.
You can calculate both effects in the calculator in Cap table and dilution.
Why a startup cannot be valued like a normal business
A mature company is valued on profit and a multiple, or on discounted cash flow.
A startup at the idea or prototype stage has no profit, little or no revenue, and a forecast made almost entirely of assumptions.
You can discount such a forecast, but the result depends on a discount rate nobody can justify.
So an early-stage valuation is not a calculation of a “fair price” but a set of arguments for the negotiation.
The methods below turn qualitative factors — team, market, product, risks — into a number you can discuss. The more methods give a similar result, the stronger your position.
The Berkus method: five elements
US business angel Dave Berkus created the method in the 1990s for pre-revenue companies. Each element removes one type of risk and adds up to a fixed amount to the valuation.
In the original, up to $0.5m per element: up to $2m before revenue and up to $2.5m once the product is on the market.
| Element | Risk it reduces | What counts as evidence |
|---|---|---|
| Sound idea: basic value | Product risk | A confirmed problem, a clear customer |
| Prototype | Technology risk | A working version, not a mock-up |
| Quality management team | Execution risk | Sector experience, all key roles filled |
| Strategic relationships | Market risk | Agreements with sales channels, suppliers, pilot customers |
| Product rollout or sales | Production risk | Paying customers |
Strictly speaking, there are five items: the basic value of the idea plus four risks reduced.
Berkus himself says the amounts are a guide to be adjusted for region, sector and time; for Silicon Valley he allows up to $1.5m per element. For Spain a lower maximum makes sense. In the calculator you can change the maximum per element.
The Scorecard method: comparing with the regional average
Bill Payne’s method. Start with the average pre-money valuation of similar startups at the same stage in your region.
Then compare the project with that average on seven weighted factors and multiply the average valuation by the weighted sum.
| Factor | Weight |
|---|---|
| Strength of the management team | 0–30% |
| Size of the opportunity (market) | 0–25% |
| Product and technology | 0–15% |
| Competitive environment | 0–10% |
| Marketing, sales channels, partnerships | 0–10% |
| Need for additional funding | 0–5% |
| Other | 0–5% |
The weak point is the starting average.
There is little public data on early-round valuations in Spain, so it comes from the experience of the angels and funds you talk to, accelerator data and deals closed by founders you know. Tell the investor where your baseline comes from.
Risk Factor Summation
This method also starts from the regional average. You then rate twelve risks from −2 to +2 and add or subtract a fixed amount per point. In the original, $250,000 per point.
The risks: management, stage of the business, legislation and political risk, manufacturing, sales and marketing, funding and capital raising, competition, technology, litigation, international risk, reputation, and the potential for a lucrative exit.
The method is useful less for its number than for its list: it makes you walk through every risk the investor will ask about anyway. For each risk with a minus, prepare how you are reducing it.
The venture capital method: valuing back from the exit
Harvard Business School professor William Sahlman described the method.
The investor reasons backwards: what the company will be worth at a sale in a few years, and how many times they want to multiply their money.
- Exit value = revenue (or earnings) in the exit year × the sector multiple.
- Post-money today = exit value × (1 − future dilution) ÷ target return multiple.
- Pre-money = post-money − investment.
Future dilution is the share the investor will lose in later rounds and option pool top-ups. Ignore it and the valuation comes out several times too high.
The method shows what valuation the deal economics can bear for the investor.
If reasonable assumptions give a lower pre-money than you want, it is not a “greedy investor”: you need a smaller cheque, a bigger market or stronger evidence of growth.
One startup, four methods
An illustrative example. A SaaS for clinics based in Valencia: a working prototype, three pilot clinics, three founders, no revenue yet. The founders want to raise €500,000.
| Method | Assumptions | Pre-money |
|---|---|---|
| Berkus | Maximum €500,000 per element; idea 80%, prototype 70%, team 60%, relationships 40%, sales 20% | €1,350,000 |
| Scorecard | Regional average €1.5m; team 125%, market 150%, product 100%, competition 75%, marketing 80%, the rest 100% | €1,732,500 |
| Risk Factor Summation | Base €1.5m, €250,000 per point; pluses: team, technology, exit; minuses: sales, capital raising; net +1 | €1,750,000 |
| Venture capital method | Revenue in 6 years €8m, multiple 3, dilution 40%, target return 10×, investment €500,000 | €940,000 |
The spread is €0.94–1.75m.
The three “project” methods give €1.35–1.75m, while the VC method gives less: the exit economics cannot bear a €500,000 cheque at that valuation.
A reasonable negotiating corridor is therefore €1.3–1.6m.
And the conclusion for the founders: either raise less, or before the round get evidence that lifts the revenue forecast — for example, turn the pilots into paying customers.
Valuation when an investor comes into a Spanish SL
How the valuation becomes documents
An investor enters an SL through a capital increase.
New shares (participaciones) are issued at nominal value, and the difference between the share price and the nominal value is paid as a share premium — prima de emisión.
The general meeting of members approves the increase, it is executed before a notary and registered with the Commercial Registry.
In the documents, the valuation appears as the price of one share: nominal value plus premium.
Example: an SL with 10,000 shares of €1, pre-money €2m. The share price is €200 (€1 nominal + €199 premium).
The investor puts in €500,000 and receives 2,500 new shares — 20% of 12,500.
Members’ pre-emption rights
In a capital increase for cash, existing SL members are entitled by law to take up new shares in proportion to their holdings (art. 304 of the Spanish Companies Act, LSC).
For a new investor to receive the shares, members waive the right or the general meeting excludes it under the rules of the Act. Set this out in advance in the shareholders’ agreement.
Questions for a tax adviser before the deal
- If founders or employees receive shares at a lower price than the investor pays, is that taxable income in kind?
- Does the deal qualify for the investor’s IRPF relief: 50% of the amount invested, on up to €100,000 a year, if the conditions of art. 68.1 of the IRPF Act are met?
- How will the round valuation affect employee options under the Startups Act (Ley 28/2022) and later rounds?
How the other instruments work — loans, préstamo participativo, convertible loans and SAFEs: How to structure startup investment in Spain. How to negotiate valuation and terms: Investor negotiations.
How to raise your valuation before the round
- Turn pilots into paying customers. It removes the biggest risk in both Berkus and Scorecard. What counts as traction: What is startup traction.
- Fill the key team roles. The team is the heaviest Scorecard factor.
- Size the market bottom-up. It is an argument in both Scorecard and the VC method.
- Build a financial model where the revenue forecast rests on a funnel, not on wished-for growth. How: Financial model.
- Raise less. A smaller cheque with the same exit economics can bear a higher pre-money.
Frequently asked questions
How do you calculate pre-money and post-money valuation?
Post-money = pre-money + investment. The investor’s stake = investment ÷ post-money. For example, with a €2m pre-money and €500,000 invested, the post-money is €2.5m and the investor holds 20%.
Is pre-money valuation before or after the investment?
Before. Pre-money is what the company is worth without the round’s money; post-money adds the investment to it.
How do you value a pre-revenue startup?
With early-stage methods: Berkus, Scorecard, Risk Factor Summation and the venture capital method. Calculate with two to four of them and combine the results into a range for the negotiation.
What is the venture capital method formula?
Post-money = exit value × (1 − future dilution) ÷ target return multiple; pre-money = post-money − investment. The exit value is revenue or earnings in the exit year times the sector multiple.
Which valuation method should you use at pre-seed?
Before revenue, Berkus and Scorecard: they rest on the team, product and market. Add the VC method to check whether the exit economics can bear your valuation and round size.
Is the option pool included in the pre-money valuation?
Often, yes: investors ask for the pool to be created or topped up before the round. The founders then pay for it, and their effective pre-money is lower than the headline.
How is valuing a startup different from valuing a business for sale?
A profitable business is valued on normalised earnings, multiples and cash flow. A startup without profit is valued with early-stage methods, and the valuation is a matter of negotiation rather than calculation.
Do you need an independent valuer when an investor comes into an SL?
For a cash contribution to an SL the law does not require an expert valuation: the members and the investor set the share price. A valuation report can help with tax questions and contested deals — decide with your adviser.
Key points on startup valuation
- Post-money = pre-money + investment; investor’s stake = investment ÷ post-money.
- Early-stage startups are valued not on profit but with the Berkus, Scorecard, Risk Factor Summation and VC methods.
- Use several methods and combine them into a range — it is an argument in the negotiation.
- An option pool and SAFEs lower the founders’ effective pre-money.
- In a Spanish SL the valuation becomes a share price — nominal value plus share premium — executed before a notary.
Sources
- Dave Berkus — updating the Berkus method (2016).
- Bill Payne — Scorecard Valuation Methodology.
- Startup Valuations: The Risk Factor Summation Method — twelve risks and the −2 to +2 scale.
- Angel Capital Education Foundation — Valuing pre-revenue companies — W. Sahlman’s venture capital method (HBS, 1987).
- Spanish Companies Act (RDL 1/2010, LSC) — art. 304, pre-emption rights.
- Spanish Personal Income Tax Act (Ley 35/2006) — art. 68.1.
