Raising seed funding is one of the key milestones that a startup needs to accomplish. Seed capital is what allows you to develop a product, build a team, and grow your business. Yet, before investors decide to commit, they want to determine what your company’s value is.
At the seed stage, valuation remains challenging despite early revenue and traction, as financials are nascent. However, presenting a clear, backed-up valuation can be very beneficial for you to get the right investors, get the best deals, and preserve your ownership position. In 2025, median pre-money valuations for seed-stage startups touched $16 million, showing how investors are rewarding high potential with strong PMF signals.
Startup valuation is more than just a number; it determines how equity is allocated, influences the confidence of investors, and sets the tone for subsequent fundraising rounds.
In this guide, we show founders of seed-stage startups how to estimate their company’s value even when there isn’t much data to work with. We’ll walk through the key factors investors focus on and the most trusted valuation methods, so you can confidently justify your funding request and negotiate better terms.
Key Factors That Influence Seed-Stage Startup Valuation
There are a few key factors that play a big role in how investors figure out the value of a seed-stage startup. First of all, if founders are aware of these factors, they will be much better prepared for value discussions and investor negotiations.
- Market Opportunity: Startups targeting large and rapidly growing markets are given priority by investors because such markets offer more potential for long-term returns.
- Team Quality: Investors typically invest in people as much as in ideas. They feel more confident in founders who have the right experience, understanding of the industry, or have been through the startup environment before.
- Product or Prototype: A working minimum viable product (MVP) or beta version shows that you have made progress, and it also helps to lower the perception of execution risk.
- Traction: Early indicators that your product really connects with the market are crucial. Traction could be customer interest, first users, or even a strategic endorsement.
- Competitive Landscape: If a startup is different in a unique way or has a defensible advantage, investors usually value it more than those doing business in saturated markets.
- Financial Metrics: Pre-revenue startups have 18+ months of runway post-raise, highlighting burn rate (monthly cash outflow), runway (months until cash hits zero), and realistic projections to show financial discipline.
Common Seed-Stage Startup Valuation Methods
Investors rely on proven valuation methods to determine the worth of seed-stage startups because these companies often have very little financial data.
1. The Berkus Method
The Berkus Method is a valuation approach that identifies a startup’s value based on the extent of risk reduction rather than on financial benchmarks. It essentially focuses on aspects of a company, such as the idea, MVP, founding team, strategic relationships, and early market validation, which represent the company’s readiness for implementation rather than its existing revenue.
To apply the Berkus Method, go through the list of major risk-reduction milestones that a startup can achieve. Such milestones entail a viable idea, a functioning MVP or prototype, a capable founding team, strategic alliances, and initial market traction. Next, you give each of these aspects a monetary value according to the degree of achievement, typically employing preset caps to prevent overpricing. Finally, you sum up the values of all completed milestones to get the total pre-money value.
Example:
Suppose the startup is evaluated using the Berkus Method criteria in the following way:
- Sound idea: 60%
- Working MVP / prototype: 75%
- Founding team strength: 100%
- Strategic relationships: 80%
- Early market validation: 50%
Assuming a maximum limit of $500,000 per factor, the valuation will be determined based on:
| Criteria | Score | Value |
| Sound idea | 60% | $500,000 × 60% = $300,000 |
| MVP / Prototype | 75% | $500,000 × 75% = $375,000 |
| Founding team | 100% | $500,000 × 100% = $500,000 |
| Strategic relationships | 80% | $500,000 × 80% = $400,000 |
| Early market validation | 50% | $500,000 × 50% = $250,000 |
Total pre-money valuation:
$300,000 + $375,000 + $500,000 + $400,000 + $250,000 = $1,825,000
Using the Berkus Method, the startup’s value comes to $1,825,000.
2. Scorecard Valuation Method
The Scorecard Method is a pre-money value estimation technique to be used at the pre-revenue or seed stage of the startup. It involves comparing the startup to other similar companies and then allocating a qualitative score for factors such as the strength of the team, market opportunity, product, competition, and sales channels, based on the potential instead of the current revenue.
The first step in applying the Scorecard Method is identifying the average pre-money value of similar startups. Afterwards, compare the startup on each factor, give a relative rating or percentage with respect to the average, and decide its importance level. Calculate each factor’s contribution by multiplying the rating by the weight, and then add the contributions to get an aggregate adjustment. Apply this aggregate adjustment to the average pre-money valuation to get the estimated startup value.
Example:
Let’s say that the average pre-money valuation of seed-stage startups in the region is $2,000,000. Here’s how the startup was evaluated:
| Factor | Weight | Rating | Adjusted Value |
| Strength of Team | 30% | 120% | 1.2 × 30% = 36% |
| Size of Market Opportunity | 25% | 110% | 1.1 × 25% = 27.5% |
| Product / Technology | 15% | 100% | 1 × 15% = 15% |
| Competitive Environment | 10% | 90% | 0.9 × 10% = 9% |
| Marketing & Sales Channels | 10% | 100% | 1 × 10% = 10% |
| Other Factors | 10% | 80% | 0.8 × 10% = 8% |
| Total Adjustment | 105.5% |
Estimated valuation = 105.5% × $2,000,000 = $2,110,000
According to the Scorecard Method, the startup’s worth is estimated at $2,110,000.
3. Risk Factor Summation Method
The risk factor summation method begins with a baseline value estimate for early-stage or pre-revenue startups, which is then adjusted up or down based on the degree and number of risks related to management, business stage, technology, market, competition, legal/regulatory, funding/capitalization, and operational areas. In contrast to financial statement-based methods, it assesses potential success through these qualitative factors.
Initially, identify a baseline pre-money value, usually the average of comparable startups. Next, rate the startup for each risk category on a scale from -2 (high risk) to +2 (low risk). Each rating adjusts the baseline by a standard amount, typically +$500K/-$500K for ±2, +$250K/-$250K for ±1, and $0 for neutral (often scaled to baseline size). Add all adjustments to the baseline to arrive at the total pre-money value.
Example:
Assuming the typical pre-money valuation for similar seed-stage startups is $2,000,000. The startup is evaluated for eight risk factors, and the adjustments to each are given below:
| Risk Factor | Rating | Adjustment |
| Management Risk | +1 | +$250,000 |
| Stage of Business | +1 | +$250,000 |
| Technology Risk | -1 | -$250,000 |
| Market Risk | 0 | $0 |
| Competitive Risk | 0 | $0 |
| Legal / Regulatory Risk | 0 | $0 |
| Funding / Financial Risk | +1 | +$250,000 |
| Other Operational Risk | +1 | +$250,000 |
| Total Adjustments | +$500,000 |
Total Pre-Money Valuation = $2,000,000 + $500,000 = $2,500,000
Using the Risk Factor Summation Method, the startup’s worth rises to $2.5 million.
4. Venture Capital (VC) Method
The Venture Capital Method assesses the value of early-stage startups mainly by pre-money valuation, which is based on projected investor returns at exit rather than the current financials. The method takes into account the expected exit value, target return multiple, and investment size to figure out dilution and investor potential.
One way to start using the VC Method is by determining the company’s expected exit value, which is usually derived from future revenues, earnings, or acquisition multiples at the time of exit. Next, identify the target return multiple that investors require (for example, 10x for seed-stage startups). The exit value divided by the target return gives the post-money assessment. Finally, to get the pre-money value, subtract the amount of new investment from the post-money valuation.
Example:
Imagine that a seed-stage startup is expected to exit for $50M in 5 years. An investor needs a 10× return and therefore intends to invest $1M.
| Criteria | Value |
| Exit Value | $50,000,000 |
| Target Return | 10× |
| Required Post-Money Valuation | $5,000,000 |
| Investment Amount | $1,000,000 |
| Pre-Money Valuation | $4,000,000 |
Post-money valuation = Exit value ÷ Target Return = $50,000,000 ÷ 10 = $5,000,000
Investor ownership = Investment ÷ Post-Money = $1,000,000 ÷ $5,000,000 = 20%
Pre-money valuation = Post-money – Investment = $5,000,000 – $1,000,000 = $4,000,000
Through the application of the Venture Capital (VC) Method, the startup’s pre-money value is estimated to be $4 million.
5. Discounted Cash Flow (DCF) Method
The Discounted Cash Flow (DCF) method determines the value of a startup by looking at the present value of its expected future cash flows. It accounts for risk and the time value of money. Basically, the DCF method relies more on projected financials than on qualitative aspects. So it is most useful for startups that already have revenue or a clear cash flow plan in the near future.
First of all, you forecast the startup’s free cash flow for future years using the DCF method. Generally, startups are forecasted for 3 to 5 years. Then, you pick a discount rate representing the risk of those cash flows and the return that investors expect. Next, you apply the discount rate to each free cash flow to get the present value. If needed, a terminal value can be added to reflect cash flows after the forecast period. The value of the startup is the sum of all discounted cash flows plus the terminal value.
Example:
Suppose a seed-stage startup anticipates the following annual cash flows for the next 5 years:
| Year | Projected Cash Flow |
| 1 | $200,000 |
| 2 | $400,000 |
| 3 | $600,000 |
| 4 | $800,000 |
| 5 | $1,000,000 |
Imagine that a discount rate of 25% is used to reflect the risk associated with a seed-stage startup. The present value (PV) of each year’s cash flow is determined by:
| Year | Cash flow | PV Factor (1/(1+0.25)^Year) | Present Value Calculation | Present Value |
| 1 | $200,000 | 1 ÷ (1.25)¹ = 0.8000 | $200,000 × 0.8000 | $160,000 |
| 2 | $400,000 | 1 ÷ (1.25)² = 0.6400 | $400,000 × 0.6400 | $256,000 |
| 3 | $600,000 | 1 ÷ (1.25)³ = 0.5120 | $600,000 × 0.5120 | $307,200 |
| 4 | $800,000 | 1 ÷ (1.25)⁴ ≈ 0.4096 | $800,000 × 0.4096 | $327,680 |
| 5 | $1,000,000 | 1 ÷ (1.25)⁵ ≈ 0.3277 | $1,000,000 × 0.3277 | $327,700 |
Total PV of Cash Flows: $1,378,580
Assume Year 5 cash flow grows at 5% perpetuity:
Terminal Value at Year 5 = $1M × (1 + 0.05) / (0.25 – 0.05) = $1.05M / 0.20 = $5.25M.
PV of terminal = $5.25M × 0.3277 ≈ $1,720,425.
Enterprise value = $1,378,580 + $1,720,425 = $3,099,005.
Applying the full DCF Method (with terminal value), the startup’s estimated value is approximately $3.1 million.
FAQs: Startup Seed Valuation
Here is a list of the most common questions related to the value of seed-stage startups:
How important are financial projections for seed-stage valuation?
Financial projections help assess seed-stage startup value by revealing growth potential, revenue assumptions, and costs. However, investors still place a very strong founding team (with 2 – 5 years of relevant experience) and a large market opportunity ($1B+ TAM) at the top of their list of priorities.
Can negotiations affect the final valuation?
Yes, investor demand, deal terms, market conditions, founder leverage, etc., are among the factors that change the startup valuation. At the seed stage, the valuation is usually between $6M and $15M.
What ROI do seed investors expect?
Since seed investors face high risk at an early stage, they usually expect 10 to 25 times returns, based on factors like market size, industry dynamics, team experience, and investment duration.
Is startup valuation assistance availed by external advisors?
Yes, mentors or valuation experts often check seed-stage startup valuations using methods like Scorecard or Berkus, by comparing them to recent deals or similar startups to ensure credibility with investors.
Should valuation be conservative or aggressive at the seed stage?
Seed valuations should be justified and aligned with the market by taking into account the startup’s ambition, traction, team capability, and benchmarks from similar startups (for example, typical pre-money valuations of $6 – $15M).
How do investor types affect valuation?
Angel investors are usually more flexible with smaller amounts of money, VCs are more strict about meeting certain milestones and pre-money valuations, accelerators use standard agreements such as SAFEs, and syndicates spread the risk among several investors.
Strengthen Your Startup Valuation with Professional Guidance
It can be quite difficult to determine the valuation of a seed-stage startup, as there is usually little financial data and business growth to rely on. However, if founders understand that investors mainly consider factors such as market potential, team quality, product development, and financial runway, and also apply established evaluation methods, they can arrive at a reasonable and defensible worth.To strengthen your valuation, Cheqly collaborates with Eqvista, which offers audit-ready 409A valuation services. This provides founders with precise, IRS-compliant information to make decisions with full confidence.