Start from dilution, not from value
Early rounds are priced backwards. The company needs a sum of money to reach a defined milestone; the market convention is that a round costs 15–25% of the equity; the valuation follows arithmetically. Anchoring on a headline valuation first usually produces either a round too small to reach the milestone or dilution the founders will resent at the next round.
Scorecard method: adjust a local benchmark
Take the median pre-money for comparable companies at the same stage in the same geography, then adjust by weighted factors: team, market size, product progress, competitive position, channel access. Each adjustment should be justified in a sentence and capped — a factor allowed to swing the number by 2x is doing the work of the whole method.
| Method | Best used when | Weakness |
|---|---|---|
| Dilution-first | Standard priced seed rounds | Ignores relative quality |
| Scorecard | Comparable local data exists | Adjustments are subjective |
| Comparables | Active, transparent sector | Comparables are rarely comparable |
| Venture method | Clear exit archetype | Highly sensitive to exit multiple |
The venture method, run backwards from exit
Estimate a plausible exit value and date, apply the multiple the fund needs on this position, then discount for the dilution expected across future rounds. The output is less a valuation than a test: if the required exit is larger than any transaction in the sector's history, the entry price is wrong regardless of how attractive the company is.
Document the basis, not just the number
Record which method set the anchor, which comparables were used with dates and sources, and what the negotiated number was. A valuation with a documented basis survives an internal challenge two years later; a number with no basis becomes an argument nobody can resolve.