top of page
Open Site Navigation

How to Value a Startup: A Quick Guide for SaaS Founders

Illustration of a hand holding money and words saying "Learn to calculate and justify the value of your startup"

Determining your startup’s valuation is one of the more difficult tasks you’ll face as a founder.

Getting it right can set the stage for successful fundraising rounds and exits. Getting it wrong can cost you equity and diminish future capital investments — and in some cases it could lead your startup to fail.

Assessing the value of your company is both an art and a science, which can make the process downright confusing and leave you feeling uncertain about a highly visible KPI. Wouldn’t you rather focus on running your business?

Thought so. We did the heavy lifting and put everything you need to know about how to value your startup into this Valuation Quick Guide. It’s an easy-to-follow resource for SaaS founders that covers:

  1. What startup valuations really are and how they work

  2. Why valuing startups is so challenging

  3. How to determine and defend your SaaS valuation

How Startup Valuation Works

It's helpful to take a step back and consider what valuations mean. A startup valuation is essentially the basis for an investment decision — an agreement between you and your investors on what your business is worth. It’s a lot like determining the value of a house.

The best startup investors use company valuations to balance risk vs. return. Some investors consider a high valuation a greater risk; others feel a higher valuation means a lower risk. Most will use business KPIs and some valuation methods to determine your company’s potential for success.

See what your startup could be worth

Ultimately, the market value of your startup will come down to a negotiation and an agreement between you and your investors. So consider any independent valuation calculation a jumping-off point for establishing your company’s value at each funding stage.

These tips can help you stay flexible and manage expectations during negotiation:

  • Don’t let your company valuation stop you from reaching an agreement with a potential investor.

  • Pick your battles wisely, and play your cards right for long-term success: Gauge their level of interest and leverage demand from other investors who may want in on your deal.

  • You may get a higher valuation pre-revenue, since there isn’t yet much that is measurable. (These valuations are much more subjective.)

  • Higher valuations aren’t always better; we explain why in the next section.

Pre-money and post-money valuations explained

Valuations can change significantly depending on your stage in the startup journey. A fundraising event will greatly impact your startup’s market value, either positively or negatively. The valuation calculations before and after these events are different, so it’s important for founders to explore both pre-money and post-money valuations when negotiating an investment agreement.

Let’s look at how pre-money and post-money valuations differ and how to use them strategically when raising funds.

What is a pre-money valuation?

A pre-money valuation is the value of a company before a funding round and typically determines what an investor’s shares in the company are worth. In other words, it’s a company's equity value before receiving capital from an investor in an upcoming round.

What is a post-money valuation?

A post-money valuation is the pre-money valuation plus the cash coming in from the new round of investment. For example, you raise $1 million in your series A round and your negotiations result in a pre-money valuation of $5 million. Your post-money valuation is $6 million.

Illustration showing the difference between pre-money and post-money startup valuations

How are pre and post-money valuations different?