The five Berkus factors
| Milestone | Risk it reduces | Value added (up to) |
|---|---|---|
| Sound idea | Basic value / product risk | $500,000 |
| Prototype | Technology risk | $500,000 |
| Quality management team | Execution risk | $500,000 |
| Strategic relationships | Market risk | $500,000 |
| Product rollout or early sales | Production risk | $500,000 |
Worked example
A health-tech startup has a validated idea ($400k), a working prototype in two clinics ($350k), a founding team with one strong operator but no technical co-founder ($250k), a distribution partnership under negotiation ($150k) and no paying customers yet ($0). Its Berkus valuation is $1.15M pre-money.
If it raises $300,000 at that valuation, the post-money is $1.45M and the investor owns about 21%.
When to use it, and when not to
- Use it for pre-revenue companies where a discounted cash flow would be guesswork.
- Adjust the per-factor maximum for your market — $500k reflects the method's original US figures; many markets and investors use lower caps.
- Stop using it once the company has meaningful revenue; switch to the scorecard method, the venture capital method or revenue multiples.
- Cross-check with at least one other method so the number is not driven by a single subjective score.
Berkus vs scorecard vs venture capital method
Berkus prices milestones reached. The scorecard method adjusts a regional median valuation for team, market, product and competition. The venture capital method works back from a plausible exit and the return the investor needs. Our free valuation calculator runs the scorecard, dilution and venture capital methods side by side.
Part of a guide
Startup financials: unit economics, runway and valuation
A guide to the financial questions that decide early-stage outcomes: CAC, LTV and payback, burn rate and runway, how much runway to hold, and how pre-revenue companies get valued.