Startup and early-stage company valuation
Early-stage valuation uses methods built for companies with no maintainable earnings to capitalise — Berkus, Scorecard, the Venture Capital method and risk-adjusted discounted cash flow.
Founders need these valuations for capital raises, employee share schemes, share issues to related parties and shareholder agreements. Investors will accept a well-reasoned early-stage method; the ATO applies more scrutiny when the same number supports a tax position, so the basis has to be documented either way.
Step by step
How an early-stage valuation is built
With no earnings history, the work moves from measuring the past to pricing risk against evidence from comparable companies and rounds.
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01
Establish stage and purpose
Pre-revenue, pre-product-market-fit or scaling — and whether the valuation supports a raise, an employee share scheme, a related-party issue or a dispute. The purpose changes the method and the level of documentation required.
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02
Select and apply the method
Berkus or Scorecard for pre-revenue, the Venture Capital method where an exit horizon and target return can be reasoned, risk-adjusted DCF once revenue is real. Usually two are applied and reconciled.
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03
Test the cap table
Options, convertible notes, SAFEs and preference terms frequently change the per-share answer more than the enterprise value does. The fully diluted position is worked through explicitly.
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04
Document the basis
The comparable evidence, the risk factors scored, the assumptions and their sensitivity — because a number for an employee share scheme or a related-party issue may be reviewed years later.
Honest scope
When this method fits — and when it does not
Use it when
- The company is pre-revenue or early revenue
- You are issuing equity to employees or investors
- A related-party share issue needs a defensible market value
- Investors or a board require an independent view
Look elsewhere when
- The business has three years of stable earnings to capitalise
- You want a number to justify a price already agreed
- The company is a lifestyle business rather than a growth company
- A simple net asset position would answer the question
Worked example: a pre-revenue software company
The company has a working product, two paying pilots and a team of four. There are no maintainable earnings, so a Scorecard approach is applied: the company is assessed against the average pre-money valuation of comparable Australian seed rounds, weighted for team, market size, product stage, competition and capital need.
A Berkus assessment is run alongside as a reconciliation. The cap table then does real work: an option pool of 12 per cent and a convertible note with a discount and a cap move the per-share figure materially away from the headline pre-money number.
A documented pre-money range, plus a fully diluted per-share figure that stands up for ESS purposes
Illustrative only. Every engagement is scoped to the specific business, its records and the purpose of the valuation.
What we need
Inputs for this valuation
Early-stage valuation is as much about the structure as the story. The cap table is usually where the surprises are.
Open the document checklist →- Capitalisation table Fully diluted, including options, notes and SAFEs
- Financial model Whatever exists — it does not need to be polished
- Actual revenue and pipeline Contracted, pilot and prospective, clearly separated
- Prior round documents Term sheets, subscription agreements, note terms
- Product and IP position Registrations, ownership, key dependencies
- Purpose of the valuation Raise, ESS, related-party issue or dispute
Yes, but not by capitalising earnings that do not exist. Berkus and Scorecard methods assess the company against comparable funded startups on qualitative risk factors; the Venture Capital method works backwards from an expected exit and target return. Both produce a documented range rather than a false precision.
No. A round price reflects negotiation, preference terms, strategic interest and the investor’s portfolio position. A valuation for tax or dispute purposes assesses market value on a defined basis, which is frequently below the headline pre-money figure — particularly where preference shares sit above ordinary shares.
Generally yes, if you want a defensible market value for the shares or options being issued. The ATO expects a documented basis, and a valuation prepared at the time is far easier to rely on than one reconstructed later. Speak to your tax adviser about which concession applies.
Substantially. An unissued option pool dilutes existing holders; a convertible note with a discount and a valuation cap can convert at a price well below the round. We work the fully diluted position explicitly rather than quoting an enterprise value and leaving you to divide.
Then a risk-adjusted DCF or a revenue-multiple comparison usually applies, cross-checked against comparable transactions in the sector. Growth companies with real revenue are more defensible to value than pre-revenue ones, but the discount rate carries the risk instead of the multiple.
Reviewed by a Certified Practising Valuer
Reviewed by Jarrad Khoury, Director and Head of Valuations — Registered Valuer (QLD, Not Limited), Licensed Valuer (WA, Not Limited), CPV and CBV. Published by Business Valuations Brisbane, the business valuation division of Asset Valuations Group.
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