How Do You Value a Startup Without Revenue?

1. The Difficulty of Startup Valuation

The video covers how to value a startup that has no revenue. For startup CEOs, a burning question is: "Why are some startups with no revenue valued at $1 million while others are valued at over $100 million?" Brett, the host, draws on his experience of raising over $100 million in venture capital and private equity funding to explain how startup CEOs can raise capital and increase their valuation.

2. Startup Valuation Methods

Brett introduces several valuation methods commonly used by pre-revenue startups and explains why they don't work.

(1) "We'll be worth $1 billion someday"

Some founders argue their startup will become a unicorn (valued at $1B+) and demand high valuations.
But Brett states flatly: "Investors don't believe you'll be worth $1 billion in the future."
"Investors are interested in realistic revenue potential, not your optimistic projections."

(2) Discounted Cash Flow (DCF)

A method that predicts future cash flows and calculates present value using a discount rate.
But since early-stage startups often don't generate revenue for 7–10 years, this method is practically inapplicable.
"Even Uber still isn't profitable. An early-stage startup's value has nothing to do with cash flow."

(3) Other Methods

The Berkus method, scorecard method, cost-to-duplicate method, risk factor summation method, book value method, standard revenue multiples, and more — Brett emphasizes that none of these matter to investors.
"Investors don't care about these methodologies. If you present them, investors will simply say 'I don't care.'"

(4) The Only Potentially Valid Method: Comparable Transaction Methodology

A method of researching what similar startups have recently been valued at.
Since investors also reference valuations within similar markets, this method can carry some persuasive weight.
"Comparable transaction methodology may be the only method investors actually use."

3. How Investors Actually Value Startups

Brett explains that the way investors value startups is very "mechanical."

(1) Investors' Basic Principles

Investors need to secure a minimum ownership stake within their portfolio.
Since some investments fail, some perform average, and only a select few return 10x or more, securing minimum ownership is essential for overall returns.

(2) Expectations by Investment Round

Seed Round: Investors expect 10% ownership and target 30x returns.
Series A: Investors expect 20% ownership and target 10–30x returns.
For example, if you raise $100K at the seed stage, the post-money valuation is $1M.
"Investors won't invest unless they believe your startup has the potential for at least a 30x return."

4. The Only Way to Increase a Pre-Revenue Startup's Valuation

Brett emphasizes that the only way for a pre-revenue startup to increase its valuation is to "create investment competition."

If multiple investors want to invest in your startup, you can increase your negotiating power.
However, this is extremely rare.
"Angel investors and VCs only make one investment decision out of every 100 meetings. Fundraising is really hard."

5. How to Talk About Your Startup's Valuation with Investors

When an investor asks, "What's your startup worth?", the wisest answer is:

"We'll let the market decide."
The market means investors, and it's better to let them make the first offer.
In negotiations, it's always advantageous to let the other side move first.
However, when raising from multiple angel investors, it may be better to set the valuation yourself.
"If an investor pushes, use the comparable transaction method and say 'Companies similar to ours have been valued between X and Y.'"

6. Summary

Most valuation methodologies don't work on investors.
An early-stage startup's value is mechanically determined based on investors' required ownership percentages and expected returns.
It's wisest to let the market (investors) determine the startup's value.

7. Additional Resources

Brett closes the video by offering a free startup pitch deck template, noting that it can help prepare for better fundraising. "Click the link to download it for free!"

This video provides realistic, practical advice for early-stage startup CEOs with no revenue. Brett's core message is simple: "Focus on what investors actually care about."