How do you use the scorecard method to value your startup? (2024)

As someone who has done startup valuations, I use the Scorecard technique as an addition to Income based approach💼📊 . When I valued a SaaS startup in Bangalore, i analysed similar startups at the same stage to arrive at an average $10 Mn pre-money valuation💰🧐.I assigned the weights as follows:📍Quality of management - 35%📍Size of opportunity - 20%📍Tech - 20%📍Sales - 15%📍Need for financing - 10%Comparing the startup with its peers, it had a📍Large TAM📈🌍 (100%)📍A firm founder👥🔝 (130% of peers)📍Good product💼🔝 (100%)📍Competition 🏆👥(80%)Need for financing 💸🏦(100%)Range = (100%*20%)+(35%*130%)+(100%*20%)+(80%*15%)+(10%*100%) = 107.5% The pre-money valuation = 107.5%*10 = 10.75 Mn💼💰

The scorecard method is a popular qualitative method used by angel investors and early-stage venture capitalists to determine the valuation of a startup, especially in the pre-revenue or very early stages. It involves comparing the startup in question to other recently funded startups and adjusting the average valuation of those companies based on specific attributes of the startup being evaluated.

Determine the average pre-money valuation of early-stage startups in your region or sector. This figure serves as a reference point and is typically gathered from recent deals in the market.

A good way to get feedback is to ask the VC how much doe she think your valuation should be.This is a good test if you did your research before. Does the VC know this market? Does he treat you fairly? How does he explain the number?Of course, don't consider it a no deal because the number is lower than you though it would be. The process, reasoning and non monetary support is just as important for your future success. But this is one way to see if you can build a good working relationship to create value with the VC.

(edited)

This is not a useful exercise for a startup to do in its entirety, IMO.Yes, you should do some homework on valuations for comparable startups with similar characteristics to yours (as suggested). But I'd stop there.You are better off spending your time focusing on execution and getting in front of more/better-fit investors (awareness & demand generation)—perceived demand for your round will have 100x more impact on value than your own internal justification for value based on (any valuation) method.

This exercise have to be done carefully and you should not get over attached to it.If this is your first (and sometime second) fund-raise, you will likely end with a cap and a discount.If you are slightly later, you will not fix the valuation of your startup. The VC that lead and bringing in the money you need do it (it is his job and requires very specific expertise).Your calculation can be a reference, but don't get too hung up on it. The best way to raise your valuation is to generate cash. The closer you are to cash flow positive, the easier the discussion.Polish your product-market fit, bring in more customers, make your team more efficient will pay more than over engineering your valuation.

The scorecard method is just one tool and should be combined with other methods and a good understanding of the market to arrive at a realistic valuation. Additionally, the final valuation will often be a result of negotiation between the founders and the investors.