Startup Valuation: How to Calculate the True Value of a Startup?

Valuing a startup is known to be far more challenging than valuing an established or growing company—both for investors and founders. While traditional valuation models rely on historical financials, future projections, performance metrics (KPIs), and market positioning, such data often doesn’t exist—or can’t be reliably forecasted—for startups. In this article, we’ll explain how the true value of a startup is calculated using commonly applied methods, supported with examples.

Valuing a startup is known to be far more challenging than valuing an established or growing company—both for investors and founders. While traditional valuation models rely on historical financials, future projections, performance metrics (KPIs), and market positioning, such data often doesn’t exist—or can’t be reliably forecasted—for startups. In this article, we’ll explain how the true value of a startup is calculated using commonly applied methods, supported with examples.

In the entrepreneurship and VC ecosystem, startups are often categorized by value using terms such as Minicorn, Soonicorn, Unicorn, Decacorn, and Hectacorn. Founders, when presenting business plans and investment theses, often invite investors to share their vision of becoming a “Unicorn.”

While the valuation methods differ across each category, in this article we will focus more on the methods commonly used in valuing minicorn candidates. These methods include: Discounted Cash Flow (DCF), Comparable Company Multiples (Comparable Comps/benchmark), and Replacement Cost or Net Asset Value (NAV). Each method is detailed below with examples.

Factors Affecting Early-Stage Startup Valuation

Valuations are not solely based on intuition or subjective judgment. There are certain key factors that shape early-stage startup valuations:

• Revenue: Whether the startup is pre- or post-revenue significantly affects its valuation. If post-revenue, the current revenue levels are considered.
• Growth Potential: Based on the startup’s idea, technology, product, or service, future growth expectations help determine valuation.
• Market Size: Demand for the product and its sales potential guide the projection of future value.
• Founding & Management Team: Experienced and successful teams are considered more likely to achieve growth, making this one of the most critical valuation factors for investors.
• Competition: The degree of competition in the sector plays a big role. Highly competitive markets may limit market share, revenue, and scalability, thus lowering valuation.

1. Multiples & Benchmark Method

One of the most popular startup valuation methods is market multiples, which use public comparables or M&A transaction data. This allows investors to benchmark startups with similar technologies, financials, or competitive advantages.

Common multiples applied include EV/Revenue and EV/EBITDA.

Key benchmarking criteria:

• Industry and target market
• Size and profitability (Sales, EBITDA)
• Growth stage (Maturity)
• Business model
• Technology
• Founders and team
• Geography
• Competition

Example: Suppose we want to value Startup A, which operates in the AI data intelligence space. Founded in 2024, it scaled rapidly to reach $2m in revenue within 12 months. Comparable companies such as Databricks, Scale, and Dataiku trade at an average EV/Revenue multiple of 21.9x.

When we examine the sector, we find data from companies operating in similar fields such as Databricks, Scale, and Dataiku. Calculating the average EV/Revenue multiple of these comparable companies results in 21.9x EV/Revenue.

The valuation of Company A can therefore be calculated as:
$2m (Revenue) x 21.9x (Multiple) = $43.8m (Enterprise Value).

Another consideration in startups, however, is that different growth rates and global scalability directly affect the multiples applied. In the example above, let’s assume Company A had a 100% growth rate, similar to its peers, and had scaled globally. In this case, applying the 21.9x multiple directly to Companies B and C would not be accurate.

Example B is growing at an average of 51% and operates only in the local market. Example C, on the other hand, is growing at an average of 114% and is a globally scaled startup. In this case, instead of applying the 21.9x EV/Revenue multiple, it would be more accurate to use an 11x EV/Revenue multiple (discounted) for Example B and a 25x EV/Revenue multiple (premium) for Example C.

The same principle applies to the products of comparable startups. The closer the product similarity, the more directly the multiple can be applied. We are not only looking at the broader AI data intelligence sector, but also directly comparing the specific product capabilities (features).

For pre-revenue startups, instead of EV/Revenue or EV/EBITDA, performance metrics (KPIs) can be taken into consideration. Examples include: number of users or subscribers, monthly active users (MAU), website traffic, and downloads. Depending on the type of business, these non-financial metrics are often used in place of traditional financial measures.

The average EV/Subscriber multiple of comparable companies B and C is 11x.

Assuming that Startup A has 100,000 subscribers, its valuation would be calculated as:
100,000 x 11x = $1.1 million.

In addition, a recent phenomenon in the VC ecosystem known as the “AI Premium” has emerged, which impacts multiples for AI vs. non-AI companies. It has been observed that the median valuation of early-stage (seed stage) AI startups exceeds that of non-AI tech startups by approximately 20%.

2. DCF (Discounted Cash Flow) Method:

The Discounted Cash Flow (DCF) method, also known as the income approach, is used to estimate a startup’s approximate value by taking into account its 5–10 year revenue and expense projections and discounting the expected future cash flows back to their present value using a discount rate.

However, in early-stage startups, entrepreneurs tend to burn cash and focus on scaling rapidly. Since they usually lack a stable revenue or profitability track record, this method is not commonly preferred for pre-revenue startups due to the absence of cash generation. When applied, DCF is heavily discounted to account for the high risks inherent in early-stage startups, as the model is based on future potential.

When forecasting future cash flows, assumptions around growth, market conditions, and scalability potential of the startup are often seen by investors as overly ambitious or unrealistic, which can lead the DCF model to produce inaccurate valuations.

So, how can the DCF method be applied?

In a DCF study, instead of relying solely on the startup’s projected growth rates, different scenarios can be incorporated to reach a more realistic valuation. Alongside the startup’s own forecasts, market research is conducted. By examining comparable startups at the same stage—their technology, product, market share, growth rates, revenues, and cost structures—the assumptions can be cross-checked.

When performing a DCF analysis, the likelihood of the startup achieving its business plan is crucial. Therefore, factors such as how growth rates play out in similar startups, industry analyst expectations, whether the sector is expanding, and whether the founders have tested viable sales channels for the product must be considered directly or indirectly in the analysis. This way, a more accurate true value of the startup can be achieved.

Below is an example of the 5-year revenue growth assumptions used in a startup’s DCF method.

The same scenarios can also be applied to the startup’s costs in order to reach a more accurate conclusion in the DCF study. Once both revenue and cost assumptions are completed, the sample DCF analysis can reveal the true value of the startup as shown below.

Example 2: DCF Analysis

3. NAV (Varlık Değeri) Yöntemi:

Finally, another method is the asset-based valuation approach known as the Net Asset Value (NAV) method. It is worth noting that this method is not commonly used in the entrepreneurship ecosystem. Essentially, it is based on investments in R&D, intellectual property, and replacement (reproduction) costs.

In particular, if there are patents, developed algorithms, or prototypes, their values are taken into account. In this method, the time and cost required to recreate the technology and IP developed by the company are calculated to determine its valuation. Recently, this approach has been more widely applied in industry-focused startups (such as electric vehicles and mobility) where significant technologies are being developed.

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