Which methods are commonly used to value early-stage startups?

• A. Book value and liquidation value.
• B. Comparables, discounted cash flow, and scorecard/venture capital method.
• C. Customer lifetime value and churn metrics.
• D. Only asset-based valuations.

Answer: (B)

Valuing early-stage startups relies on methods that account for high uncertainty and limited tangible assets. Using market-based benchmarks through comparables gives a sense of what investors are willing to pay for similar ventures. Discounted cash flow can be used when possible by translating future expected performance into present value with an appropriate risk-adjusted discount rate. The scorecard method and the venture capital method are specifically designed for startups: the scorecard adjusts a baseline valuation for factors like team quality, opportunity, product, and risk, while the VC method estimates an expected exit value and works backward to a pre-money valuation that meets a target return.

In contrast, book value and liquidation value depend on current balance sheet assets, which are often sparse or non-representative for young startups. Customer lifetime value and churn metrics are important performance indicators but are not standalone valuation methods. Asset-based valuations focus on tangible assets, which startups typically lack and hence fail to capture their true potential and growth drivers.

So the combination of comparables, discounted cash flow, and the scorecard/venture capital method is the approach commonly used for early-stage startup valuation.