What to Answer When an Investor Asks, "How Much Is Your Company Worth?"

At some point during the meeting, it always comes up: "So, how much is your company worth?" Most founders respond to this question by throwing out a number. The moment they say that number, they lose their leverage—because they've put a figure on the table that they can't back up.

What the investor is testing at that exact moment isn't the number itself. It's how you arrived at that number. If a founder says, "I think my company is worth X amount," the investor learns one thing: this person hasn't figured out the financial logic of their own business. From that point on, it's no longer a valuation negotiation; it's a negotiation of trust.

Defend the Methodology, Not the Number

Valuation doesn't measure a hard truth; it expresses a context. The exact same company, on the exact same day, can be valued differently by two different investors—and both might be right. Because valuation isn't the answer to "How much money is this company worth?" but rather, "How much equity do I want in exchange for taking on this risk?"

That's why you shouldn't go to the table with just a number, but with a methodology. A founder who can explain their methodology retains their position, even if the number is debated. A founder with no methodology remains weak, even if their number is accepted.

Three Methods, Three Different Questions

Common valuation methods aren't alternatives to one another; they answer different questions. Your company's current stage determines which one makes sense for you.

• The Berkus Method — Answers the question: "I don't have revenue yet, so what do I actually have?" It values tangible assets separately, such as the idea, prototype, team, relationships, and early sales. It is designed for pre-revenue companies.
• The Scorecard Method — Answers the question: "Where do I stand compared to my peers?" It references the valuations of companies in the same region and stage, positioning you against them based on criteria like team, market, and competition.
• Discounted Cash Flow (DCF) — Answers the question: "What is the cash I'll generate in the future worth today?" It makes sense for companies with predictable revenue; applying it to a pre-revenue startup turns into stacking assumptions upon assumptions.

The trap founders frequently fall into is choosing a method that doesn't match their stage. Opening a DCF spreadsheet for a pre-revenue company doesn't show strength to an investor; it shows a lack of preparation—because every single row in that table is your guess, and the investor knows it.

Valuation Is a Bargaining Position

A high valuation is not always a good thing. A valuation you artificially inflate today will come back to haunt you in the next round: if your growth doesn't justify that valuation, you'll be forced to do a down round, which will hit both your existing investors and your team's equity motivation.

Valuation isn't the price of the money you are raising, but the price of the equity you are giving up. The moment you frame the question this way, the negotiation changes.

The right question shouldn't be "How do I get the highest valuation?" but rather, "How much equity am I willing to part with in this round, and for what in return?" Once you clarify the money you need and the milestone you will reach with that money, the valuation naturally settles into a range.

Three Things Before You Sit at the Table

• Calculate your own number. Instead of reacting to the investor's figure, determine your own range in advance. Have a range, not a single number.
• Know what you need. The answer to "How much are you raising?" is the exact amount of capital required to hit your next milestone. Any more is unnecessary dilution; any less leaves you stranded.
• Draw your floor in advance. Decide before the meeting which valuation you will not sign below. Managing emotions at the table is always more expensive than managing them with preparation.

How to Find the Range in Practice

There's a simple starting point: figure out the capital you need to reach your next milestone, then divide it by the equity percentage you are willing to give up for this round. In a round where you give up 20% equity, the post-money valuation of the company is five times the capital you need. This calculation doesn't give you a single exact figure—it gives you a range. And that range is the real subject of the negotiation.

The real discipline here is having genuinely calculated the capital you need. Most founders pull this number out of thin air; yet, when you add up team costs, the product roadmap, and the go-to-market plan, a much more defensible number emerges. This is precisely one of the first things an investor checks.

The Most Common Mistake

The most frequent error is turning valuation into a matter of pride. When an investor finds the number too low, the founder goes on the defensive, offering claims instead of reasoning. Yet what you should do at that exact moment is the opposite: ask the investor which assumption they disagree with.

Because the disagreement is almost never about the number. It lies in the market size, the growth rate assumption, or the belief in the team's ability to execute. If you can uncover that assumption and talk about it, the valuation debate stops being a negotiation and turns into a joint calculation—and it usually closes in your favor.

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Frequently Asked Questions

How is company valuation calculated?

There is no single correct formula; the method is chosen based on the company's stage. For pre-revenue startups, the Berkus and scorecard methods are used—one values tangible assets you have, while the other positions you relative to similar companies. For companies with predictable revenue, discounted cash flow becomes relevant. What matters in front of an investor is being able to explain your chosen method and assumptions.

How do you value a pre-revenue startup?

When there is no revenue, discounting future cash creates a stack of assumptions. Instead, the tangible assets you currently possess are valued: the idea itself, a working prototype, the assembled team, industry relationships, and early sales if any. The Berkus method is built entirely on this logic, while the scorecard method benchmarks you against similar companies at the same stage.

What should I do if an investor thinks my valuation is too low?

Instead of defending the number, ask where the divergence lies. Investors generally don't disagree with the number itself, but with an underlying assumption—like market size, growth rate, or the team's execution capability. If you bring that assumption to light, the discussion shifts from a negotiation to a collaborative calculation.

Does the founder determine the valuation, or does the investor?

In practice, they both do, but the starting point is set by the side that is prepared. A founder who has calculated their own range using a solid methodology casts the first anchor at the table. A founder waiting to hear a number from the investor enters the negotiation on ground drawn by the other party.

Is a high valuation always a good thing?

No. A valuation held artificially high today will surface in your next round: if growth doesn't justify that valuation, you will be forced to do a down round. This negatively impacts both existing investors and the team's equity motivation. A healthy valuation is one that is verifiable and allows you to reach your next milestone.

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Calculate Valuation on Your Own

How to apply the Berkus, scorecard, and discounted cash flow methods, ways to sit strong at the table during investor negotiations, and critical clauses in term sheets—it's all in the book. Check out the digital edition of the book.