Valuing a company with no revenue is not a calculation. There is nothing to discount, no multiple to apply, and no comparable that genuinely compares.
What actually happens is a negotiation dressed in the language of valuation. Understanding that is the most useful thing a founder can know going into it.
Why the usual methods do not work
Discounted cash flow requires cash flows. Applying it to a projection you invented produces a number with the appearance of rigour and none of the substance — and experienced investors know it, which is why producing one can hurt you.
Revenue multiples require revenue.
Comparables require companies that are genuinely comparable, at the same stage, in the same market, with disclosed terms. At pre-revenue, those are rare and the disclosed ones are the exceptions.
What actually sets the number
How much you are raising
Work backwards. An investor expects a meaningful stake for a seed cheque. If you need £500,000 and 20% is the norm, you are arguing for a £2m pre-money whether you approached it that way or not.
This is the dominant factor, and it explains why raising more money almost always means accepting a higher-risk valuation conversation, not simply a bigger number.
Evidence, in order of weight
- Revenue, however small — a single paying customer changes the conversation more than any deck
- Signed contracts or letters of intent
- Usage or retention data from a live product
- A working product with no users
- A team that has done it before
- A plan
Investors pay for the reduction of uncertainty. Each step up that list removes some, and the price moves accordingly.
The team
At pre-revenue, a large part of what is being bought is the people. A founder who has built and sold something before raises at a higher number than one who has not, for the same idea. That is not sentiment, it is a lower probability of failure.
Competition
One interested investor produces a valuation discussion. Two produce a market. Nothing else moves the number as much, and nothing else is as hard to manufacture honestly.
The number you should not start with
Do not open with a valuation derived from what you need your stake to be worth.
It is transparent, it invites an argument you cannot win with evidence, and it costs credibility at exactly the moment you are being assessed on judgement.
Sidestepping it
This is why convertible notes exist. If the valuation genuinely cannot be settled on evidence, defer it to a round that can — and accept a discount and a cap as the price of deferral.
The trade is real: you avoid an argument now and accept that someone else will set the price later.
The thing to hold on to
A valuation is not a statement about what your business is worth. It is the price at which one investor was willing to transact on one day, given the evidence in front of them and the alternatives available to them.
Founders who treat it as a verdict on the company take the negotiation personally and make worse decisions. Founders who treat it as a price behave better in the room — and, not coincidentally, tend to get a better one.
Related reading
- How much equity should you give away?
- Convertible loan notes explained
- What goes in an information memorandum
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.