Startup Valuation Guide

Founders arrive at valuation discussions carrying a spreadsheet. Investors arrive carrying an ownership target. That mismatch explains most of the friction, and knowing which side of it you are standing on is most of what makes a founder good at this conversation.

Having managed a €14M fund and sat on eight boards, I can tell you what happens in the investment committee: nobody discounts your projected 2030 cash flows. They discuss what percentage they need, what similar companies cleared at recently, and whether anyone else is competing for the round.

What actually decides valuation

1. Fund ownership targets. A fund's model requires a certain percentage at entry — often 10–20% at pre-seed and seed. Round size and that percentage together imply your valuation, before anyone opens a model.
2. Comparables in your actual market. Not Silicon Valley. What did companies at your stage, in your sector, in your geography raise at in the last twelve months? CEE valuations sit materially below US ones for the same traction.
3. Competition for the round. The single biggest lever a founder controls. One interested fund produces their number; three produce yours.
4. Traction quality. Not just the size of the number but its shape — growth rate, retention, whether revenue is contracted or hopeful.
5. Team. At pre-seed, the largest single input, because there is little else to price.

The methods, and when they apply

Method	Useful when	Limitation
Comparables	Always — the primary reference at every early stage	Private round data is patchy and often stale
Ownership-target maths	Understanding what a specific fund can offer	Says nothing about what you are worth, only what they need
Revenue multiple	Post-seed B2B with real, growing ARR	Meaningless below roughly €500K ARR
Scorecard / Berkus	Pre-revenue, as a sanity check between angels	Subjective; institutional funds do not use it
DCF	Late stage, predictable cash flows	At early stage it is theatre — the assumptions carry the result

How a fund reasons backwards

The logic is simpler and harsher than founders expect. A fund needs its winners to return the whole fund. So a partner asks: if this works, can it exit at a size where our stake returns our fund? If the answer is no at your asking valuation, they decline — not because they doubt you, but because the arithmetic cannot work regardless of how well you execute.

Pre-money, post-money and the option pool

Pre-money is the valuation before the new money; post-money adds the investment. On a €800K round at a €3.2M pre-money, post-money is €4M and the investor owns 20%. Founders who agree a number without specifying which one they meant lose several points of ownership to a misunderstanding.

Then the option pool, which is where the real value moves. If a term sheet requires a 10% pool created pre-money, that pool dilutes founders alone — the investor's percentage is protected. Ask explicitly whether the pool sits inside the pre-money and what the resulting founder ownership is. It routinely matters more than the headline valuation.

When you do not set a valuation

Convertible instruments — SAFEs and convertible notes — let you defer pricing, usually with a valuation cap. This is often correct at pre-seed: you avoid a priced round before there is enough evidence to price, and you close faster.

The discipline it requires is tracking what those instruments become. Several SAFEs at different caps, converting together at a seed round, can dilute founders far more than expected. Model the conversion before you sign, not after.

Negotiating without anchoring badly

Do not name the first number if you can avoid it. Lead with the round size and the milestone it buys; let the valuation follow from the ownership conversation. When pushed, give a range grounded in comparables rather than ambition.

Valuation is not won in the negotiation. It is won by having a second interested investor.

And separate price from terms. A slightly lower valuation with clean terms is usually better than a headline number carrying participating preferred, a large pre-money pool or aggressive anti-dilution. Founders optimise the number they can tell people and concede the clauses that decide what they actually receive.

The cost of a valuation that is too high

A valuation you cannot grow into is a debt payable at the next round. You need to roughly double or triple the underlying business to justify a normal step up. If you do not, the options are a flat round, a down round, or a bridge — all of which cost more, in ownership and in credibility with your own team, than the extra half-million of valuation was worth.

The healthy target is a valuation you can justify today and clearly beat in eighteen months. That is a boring answer, which is why it is not the popular one.