Valuing a startup with zero revenue can feel like trying to hit a moving target. But here’s the truth — startup valuations are never really about the past. Instead, they’re grounded in one key idea: future potential.
As legendary investor Bill Gurley puts it, “Valuation isn’t an award for past behavior. It’s a hurdle for future performance.” That perspective is especially relevant when you’re trying to assess the worth of a pre-revenue startup.
So, how do you actually go about it?
Why Pre-Revenue Valuations Aren’t So Strange After All
At first glance, assigning value to a startup without sales or customers may seem impossible. But revenue isn’t the main benchmark investors use. In fact, every valuation — whether for a new venture or a mature business — is based on forecasting what lies ahead.
The technical term? Discounted future cash flow. In simpler terms, it’s about imagining the future and estimating what the business could become — especially in terms of growth, profitability, and exit potential.
Step-by-Step Framework: Mapping the Startup’s Future
Valuing a pre-revenue company still requires structure. The process often boils down to three crucial steps:
- Ambition to Strategy
What does the founder want to build? This stage involves turning bold vision into a strategic roadmap. What markets will they enter? How fast can they grow? What resources will it take? - Strategy to Financials
Once the strategy is defined, it’s time to crunch numbers. How much revenue could the company generate? What will it cost to get there? This involves building forecasts based on operating expenses, cost of goods sold (COGS), and expected margins. - Financials to Ambition
Finally, loop back. Do the numbers support the original ambition? If projections seem unrealistic or over-optimistic, it might be time to refine the plan or adjust expectations.
This approach doesn’t give you certainty, but it does create coherence — a logical narrative that ties the company’s ambition to its projected outcomes.
What Early-Stage VCs Are Really Looking For
Investing at the pre-revenue stage is a high-risk move. But that risk is offset by the size of the potential upside. As Eric Bahn of Hustle Fund once said, the most important question a VC can ask is: “What happens if everything goes right?”
That’s the mindset needed here. You’re investing in possibilities — not past performance.
Every Startup Journey Begins with Assumptions
In the early days, a startup’s entire pitch rests on a stack of assumptions. The first big milestone is usually revenue — proving the team can actually attract paying customers. From there, more data points begin to emerge: how scalable is the revenue model? How sticky are the customers? Does product expansion drive more value?
But at the pre-revenue stage, you’re simply betting earlier in that chain. It’s not more uncertain — just a different kind of uncertain.
Often, startups raising without revenue are building something complex or capital-intensive. Bootstrapping isn’t an option, so they need external funding to get to that first launch.
That’s why smart investors look for ways to validate assumptions even without revenue. This might involve:
- Market research
- Customer interviews
- Prototypes or MVPs
- Technical due diligence
These indicators help de-risk the opportunity — even before a single dollar hits the books.
The Push and Pull Between Founders and Investors
Here’s the dance: the best founders build a compelling story that gets investors excited — even without proof. That conviction helps them raise at better valuations.
At the same time, top investors work hard to build their own conviction before proof arrives. That gives them the chance to invest earlier — and at a more favorable price.
This back-and-forth exists at every funding stage. But when it comes to pre-revenue startups, it’s even more critical. That’s because so much still lives in the realm of possibility.
Final Thoughts: Embracing Uncertainty is the Point
If you’re trying to value a startup with no revenue, you’re not looking for certainty. You’re building a picture of what could happen. And that’s exactly what venture capital is all about — betting on the future with a thoughtful, prepared mindset.
If you’re more comfortable relying on spreadsheets and past data, pre-revenue investing probably isn’t for you. But for those willing to think beyond the numbers, there’s a lot of upside to uncover.
