Your Earliest Valuation Isn’t So Complicated—Use Your Financial Projections.

We’ve walked through how a startup can significantly benefit from having a financial model—even if the numbers are mostly made up—then how to use that model to figure out how much to raise in a funding round.

Now, we’re connecting that to a question that gets a lot more attention than it probably deserves at the pre-seed stage: What’s your company worth?

The good news is, if you’ve followed the first two steps, you’re already most of the way to a startup valuation.

A Simple Approach to (very) Early-Stage Valuation

At the earliest stages, there’s a surprisingly straightforward way to estimate valuation:

Take the amount of money you need to raise, and divide it by the percentage of your company you’re willing to sell, that’s your post-money valuation.

If your model tells you you need $250K to get to your next inflection point, and you’re comfortable giving up 10% of your company to raise it, then you’re raising at a $2.25M pre-money valuation. Once the money is in, the company’s post-money valuation is $2.5M—and $250K is 10% of that.

It’s a straightforward way to match founder needs and investor expectations at a time when traditional valuation methods—discounted cash flows, revenue multiples, Black-Scholes-Merton models—don’t apply. Because at this point, there just isn’t enough meaningful data to use them.

More Than Math: Aligning Incentives

There’s also some good alignment built into this approach.

Most experienced early-stage investors expect a funding round to fall in the 10–20% dilution range. That’s not arbitrary—it’s intentional. Investors want founders to maintain significant ownership early on, because future rounds (and thus dilution) are usually likely. Over-diluting the founding team too soon can lead to disincentive later, just when things are starting to work.

As a company grows investors and founders alike should be happy to own a smaller piece of a much bigger pie together, not gobble up as much of the pie as they can.

Where you fall on that spectrum of dilution this early largely depends on how much business validation and traction you’ve built. You can make a decent case to part with less if you’ve got good market-validated numbers to back up your efforts.

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Capital Efficiency

This also applies pressure in the right places. If you’re asking for $5M at the idea stage and even aiming to give up 20%, you’re implying a $20M pre-money valuation. That number is not just sky high for new companies—it’s unrealistic unless you’ve got a serious track record. So the model nudges you to tighten your capital plan and find ways to do more with less, which is exactly the kind of signal early investors look for.

Keep Scaling Expectations with Context

This approach doesn’t ignore industry nuance either. In capital-intensive sectors or buzzy markets, valuations and raise amounts tend to move up together. That’s fine, and expected. But again, it comes back to incentives: as long as you’re maintaining meaningful founder ownership and your raise is grounded in a credible model, you can scale both numbers without breaking the logic.

Later on—once you’re sitting on a few years of financials, past funding rounds, user growth, and market proof—there’s a stronger case for more sophisticated valuation models.

A Note on Timing

This approach works at the very early stages, when you’re still pre-revenue or just starting to see the first signs of traction. Later on—once you’re sitting on a few years of financials, past funding rounds, user growth, and market proof—there’s a stronger case for more sophisticated valuation models.

But for now, this approach gets the job done. It’s simple and keeps both sides of the table focused on what matters: building a company with aligned incentives, real things to achieve, and enough capital to get to the next chapter.