Business
Startup valuation: the methods VCs actually use
From the VC method to ARR multiples — a practical guide for founders and angels.
The 4 most-used methods
- Comparable transactions — what similar startups raised at.
- ARR multiples — SaaS at 8–12x ARR (down from 20x in 2021).
- Berkus method — for pre-revenue: $0.5M per de-risked area (idea, team, prototype, etc.).
- VC method — work backwards from exit value ÷ expected ownership.
The numbers that move valuation
- ARR + growth rate (LTM)
- Gross margin
- Net retention (>120% is elite)
- CAC payback (<12 months is good)
- Team quality (single biggest factor pre-revenue)
What kills valuation
Stagnant growth, single customer concentration, high churn, missed milestones.
Founder negotiation
Always know your last term sheet, your runway, and your next milestone before you negotiate.
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