Introduction

Valuation feels subjective to founders.
To investors, it is structured logic and risk-adjusted reasoning.

Founders often declare what they believe the company is worth.
Investors immediately ask: based on what?

A valuation must be grounded in methodology, comparables, and defensible assumptions.
If you cannot justify your valuation clearly, confidently, and logically, you lose negotiation leverage instantly.

Here are the valuation methods investors apply, and what they reveal about your business.

1. Comparable Company Valuation

Investors look at how similar companies are valued across revenue, EBITDA, or ARR multiples.

Comparable analysis answers one question:
What does the market pay for businesses like yours?

If your valuation falls outside the range without justification, it signals unrealistic expectations.

2. Discounted Cash Flow

While DCF is less reliable for early-stage startups, investors use it to evaluate your thinking.

It reveals whether you understand:

• Cash flows

• Time value of money

• Risk-adjusted discounting

• Cost of capital

DCF isn’t about precision, but about demonstrating maturity.

3. Venture Capital Method

This is the most common early-stage valuation method.

It works backwards:

• Expected exit valuation

• Required rate of return

• Ownership percentage needed

• Present valuation

If your current valuation doesn’t allow investors to hit their return targets, the deal doesn’t happen.

4. Scorecard Valuation

This method compares your startup to the typical pre-seed or seed company in the region.

Investors score:

• Team strength

• Market size

• Traction

• Competition

• Risk profile

The blended score produces a valuation expectation.
Low founder score → lower valuation ceiling.

5. The Reality Filter

Even when methods support a valuation, investors still apply judgment.

They consider:

• Founder defensibility

• Stage of company

• Competitive risk

• Market readiness

If the valuation feels inflated, negotiations weaken instantly.

Final Message

Valuation is not storytelling.
It is structured reasoning wrapped in negotiation.

Founders who understand valuation don’t just negotiate better, they earn investor respect.