Scorecard valuation method: How to value a startup with no revenues?
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The scorecard valuation method is a popular, pre-money valuation method for early-stage startups. In this method, a startup is valued based on an adjusted benchmark value. The central idea is that a startup should be valued in line with comparable startups (similar in terms of geographical location, industry, market potential, and development stage). Next, the benchmark value is adjusted to reflect important nuances that justify a lower or higher valuation.
The Scorecard Valuation Method: Fundamentals
The scorecard valuation method was first formulated in 2001 by Bill Payne, a US-based angel investor and startup mentor. It is also known as the Bill Payne valuation method. Like the Berkus Method of valuation, the Scorecard method does not rely on the startup’s financial projections because young startups often fail to meet their financial targets. Instead, the scorecard valuation method compares the target company to similar companies on the following 7 parameters.
Strength of the Management Team (0–30%)
Size of the Opportunity (0–25%)
Product/Technology (0–15%)
Competitive Environment (0–10%)
Marketing/Sales Channels/Partnerships (0–10%)
Need for additional investment (0–5%)
Other (0–5%)
These factors are ranked from most important to least important. The strength of the management team and the size of the opportunity are the dominant factors and together account for a maximum of 55% of the total valuation. In contrast, the requirement for additional funding only accounts for 5%.
The method can be used to value pre-seed companies, except for companies that operate in capital-intensive sectors, such as biotech and technology companies with a hardware focus.
Application of the Scorecard Valuation Method in Excel
The starting point for the scorecard method is finding the average pre-money valuation of companies that are comparable to your startup. By collecting relevant pre-money valuations and averaging them, a benchmark value is established. Unfortunately, this is also by far the most difficult step.
The average pre-money valuation of pre-revenue companies in a region is key to the scorecard valuation method. But how do you select an appropriate pre-money valuation benchmark? The value needs to be representative of the region, industry, market size, and stage of development of the startup. In addition, the stage of the current economic cycle will also affect the pre-money valuation.
According to an analysis performed by KPMG, the global median pre-money valuation for an angel investment is $3.6 million as of 31/12/2021. However, in the US, the Americas, and Asia the value is roughly $4.5 million while Europe’s median at $3.3 million is slightly below the global median value.
These valuations appear to be quite high relative to historical valuations for pre-revenue companies. This is partially explained by the post-covid valuations boom, the increasing competition among investors for promising early-stage investments, and the amount of dry powder awaiting deployment by VC/PE firms.
You could try to find a relevant pre-money valuation mean or median from industry reports, such as Pitchbook’s Annual US VC Valuations Report 2021. Alternatively, an excellent resource to find pre-money valuations on individual companies is Crunchbase. Unfortunately, the pre-money valuations are behind a paywall for which you require an annual pro subscription and good research skills.
Let’s say that your research resulted in four pre-money valuations of comparable companies. We now take the average of these values to arrive at a benchmark pre-money value, for example, $3,000,000. If you are unable to find pre-money valuations of competitors, you could use the mean or median from industry reports as the benchmark value.
Next, you need to adjust the benchmark value based on your appraisal of some qualitative factors. This requires you to first determine the adjustment factor.
Recall that the scorecard valuation method is based on 7 parameters that are ranked in order of importance. Each parameter has a maximum theoretical weight (e.g., strength of the management team up to 30%, size of the opportunity up to 25%, etc.).
The actual weight you assign is subjective. For example, if you believe the strength of the management team doesn’t deserve the full 30% weight, you might set it at 25%. Note that the actual weights don’t need to add up to 100%—you cannot exceed the max per parameter, so the sum may be less than 100%.
The target company impact assessment can follow a valuation worksheet where issues and impacts are listed. Impacts can range from very positive (+++) to very negative (—). Some items (e.g., founder coachability, willingness of CEO to step down, lack of IP) can be deal-breakers.
The worksheet doesn’t prescribe how to aggregate each parameter. Ultimately, decide whether your company scores better or worse than peers. 100% means “at par.”
Multiply each parameter’s weight by its relative score to get its “factor strength.” Sum these to obtain the overall adjustment factor.
Finally, multiply the benchmark pre-money valuation by the adjustment factor. For example: $3,000,000 × 0.85 = $2,550,000 (≈ $2,542,500 with precise rounding). In this example, the pre-money valuation is below peers—perhaps due to targeting a smaller niche market.
Ultimately, the scorecard method produces a pre-money valuation for your company. This valuation cap can be embedded into a SAFE or a convertible instrument. Note: valuation caps are often set on a post-money basis, not pre-money—this distinction frequently causes confusion and is outside the scope of this article.
The advantages and disadvantages of the scorecard valuation method
Strengths
Delivers a ballpark valuation quickly for founders and early-stage investors.
Worksheets provide guidance to reduce ambiguity and improve consistency; they also surface common startup issues.
Weaknesses
Starting point (peer pre-money valuations) may be hard to source and not public.
Subjective weights and impact multipliers drive results.
Doesn’t replace the need for robust financial projections—every startup still needs to understand its path to revenues, cash, and funding needs.
Summary
The scorecard method values startups by benchmarking comparable pre-money valuations and adjusting via a weighted assessment across seven parameters. It’s quick and qualitative but inherently subjective. Applying it methodically within an organization can improve consistency—and it should be complemented with sound financial planning.
