Module XIV·Article III·~3 min read
Startup Valuation: Berkus, Scorecard, VC Method and pre-money/post-money
Venture Capital and Startup Financing
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Pre-money vs. Post-money Valuation
Basic concepts that are critically important for understanding dilution.
Pre-money valuation: The value of the company BEFORE the investment.
Post-money valuation = Pre-money + Investment Amount
Investor share = Investment / Post-money
Example:
- Pre-money: $10M
- Investment: $2M
- Post-money: $12M
- Investor share: $2M / $12M = 16.7%
Critical mistake: Confusing pre-money and post-money. If an investor says "$10M valuation"—clarify: pre or post?
Early-stage Valuation Methods
Berkus Method
Developed by Dave Berkus for pre-revenue startups. Assigns value based on five factors:
| Risk factor | Maximum value |
|---|---|
| Viable idea (reducing major risk) | $500,000 |
| Prototype/MVP (reducing technology risk) | $500,000 |
| Quality of management (reducing execution risk) | $500,000 |
| Strategic partnerships (reducing competitive risk) | $500,000 |
| First sales/customers (reducing market risk) | $500,000 |
| Total maximum | $2,500,000 |
A simple but subjective method. Suitable for pre-seed.
Scorecard Valuation Method
Compares the startup with an “average” similar startup in the region/sector.
Steps:
- Determine the average pre-money valuation for comparable funded startups (for example, $2M for seed SaaS in MENA)
- Weigh key factors
| Factor | Weight | Score (0–1.5) | Weighted score |
|---|---|---|---|
| Team | 30% | 1.3 | 39% |
| Market size | 25% | 1.2 | 30% |
| Product/technology | 15% | 1.0 | 15% |
| Competition | 10% | 0.8 | 8% |
| Marketing/channels | 10% | 1.1 | 11% |
| Need for additional investment | 5% | 0.9 | 4.5% |
| Other | 5% | 1.0 | 5% |
| Total | 100% | 112.5% |
Valuation = $2M × 1.125 = $2.25M
VC Method (Venture Capital Method)
Most common for Series A+. Based on expected exit value.
Steps:
- Estimate the Exit Value (Terminal Value) in 5–7 years
- Determine Target ROI (usually 10x–30x for early stages)
- Calculate required share
Formula: Post-money Valuation = Exit Value / Target ROI Pre-money Valuation = Post-money − Investment
Example:
- Forecasted exit value in 5 years (Revenue $50M × EV/Revenue multiple 5x = $250M)
- Target ROI: 20x
- Required equity = $2M investment × 20 = $40M exit proceeds
- Required share: $40M / $250M = 16%
- Post-money = $2M / 16% = $12.5M
- Pre-money = $12.5M − $2M = $10.5M
Adjustment for dilution: Future rounds will dilute the investor’s share. If expected dilution is 40%: Current share, accounting for dilution = 16% / (1 − 0.4) = 26.7% required today.
Comparable Transactions (Comp Analysis)
Using analogous deals in the sector:
- ARR Multiple: EV/ARR (Enterprise Value / Annual Recurring Revenue)
- Typical ranges: Early-stage SaaS 5–20x ARR; FinTech 3–10x ARR; Deep Tech 2–8x
Data sources: PitchBook, CB Insights, Crunchbase Pro, MENA-specific: MAGNiTT.
First Chicago Method
Probability-weighted scenario analysis:
| Scenario | Probability | Exit Value | Expected Value |
|---|---|---|---|
| Best case (IPO) | 15% | $500M | $75M |
| Base case (Strategic M&A) | 45% | $80M | $36M |
| Worst case (Acqui-hire) | 25% | $10M | $2.5M |
| Failure | 15% | $0 | $0 |
| Expected Value | $113.5M |
Typical VC-target shares
- Seed: 10–20% per round
- Series A: 15–25% per round
- Series B: 10–20% per round
- Dilution per round: 15–25%
Factors influencing valuation in MENA
- Market: TAM (Total Addressable Market) in the region is smaller than in the US → need to demonstrate global ambition
- Unit economics: LTV/CAC > 3x is the standard for SaaS
- Team: Presence of a serial entrepreneur with exits significantly increases valuation
- Traction: Revenue and growth are key. $100K MRR + 20% month-over-month → strong Series A candidate
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