The scorecard method worked on one seed deal, what each rating is worth in money, and why the comparable average matters more than any of them.
The scorecard method values a pre-revenue startup by taking the average pre-money of comparable seed deals in the same region and stage, and scaling it by a weighted comparison of the company with the average one. With an illustrative 6,000,000 average and ratings that sum to a factor of 1.155, the pre-money is 6,930,000, and a 1,500,000 round buys 17.79 per cent of the company.
Worked in full in The Venture Capital Associate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
There are no cash flows to discount at seed and often no revenue to multiply. The scorecard method, popularised by the angel investor Bill Payne, accepts that and asks a narrower question: is this company better or worse than the typical company raising at this stage, and on which dimensions? It is a relative method. All of its market information sits in a single input, the average pre-money, and all of its judgment sits in the ratings. An associate preparing a first view on a seed deal should be able to run it in five minutes and, more usefully, show which rating drives the answer.
The weights are the ones usually quoted for the method; the ratings are the associate's comparison of this company with the average deal. 100 per cent means "the same as the average".
| Factor | Weight | Rating | Weight × rating |
|---|---|---|---|
| Strength of the team | 30% | 125% | 0.375 |
| Size of the opportunity | 25% | 150% | 0.375 |
| Product and technology | 15% | 100% | 0.150 |
| Competitive environment | 10% | 75% | 0.075 |
| Marketing, sales channels, partnerships | 10% | 80% | 0.080 |
| Need for additional investment | 5% | 100% | 0.050 |
| Other | 5% | 100% | 0.050 |
| Total | 100% | 1.155 |
Average pre-money of comparable seed rounds in the region: 6,000,000. Round size: 1,500,000. Both are illustrative, not market statistics; in practice the average comes from the fund's own deal log or from a data provider, filtered to the same stage, sector and geography.
Factor = Σ weighti × ratingi
Pre-money = average pre-money × factor
Investor ownership = round / (pre-money + round)
In Excel, with weights in B2:B8 and ratings in C2:C8: =SUMPRODUCT(B2:B8,C2:C8)*AvgPre
Step 1, the factor. The team is rated a quarter better than average and the market half as large again, which together contribute 0.750 of the 1.155. The competitive environment and the go-to-market plan are rated below average and pull it back. The weights sum to 100 per cent, so a company rated 100 per cent on everything gets exactly the average.
Step 2, the pre-money. 6,000,000 × 1.155 = 6,930,000. Post-money with the round is 8,430,000.
Step 3, the ownership. 1,500,000 / 8,430,000 = 17.79 per cent, against 20.00 per cent if the company had been priced at the average. That 2.21-point gap is what the scorecard argues about, and it is the number to take into the partner meeting.
Because the method is linear, each rating has a fixed price: 25 rating points on a factor move the pre-money by 0.25 × weight × average.
| Factor | Weight | Pre-money moves by |
|---|---|---|
| Strength of the team | 30% | 450,000 |
| Size of the opportunity | 25% | 375,000 |
| Product and technology | 15% | 225,000 |
| Competitive environment, or marketing | 10% | 150,000 |
| Need for additional investment, or other | 5% | 75,000 |
A founder asking for 8,000,000 pre-money is asking for a factor of 1.333. Holding the other ratings, the team would need a rating of 184 per cent to get there: almost twice as strong as the average seed team. Framed that way, the negotiation becomes a discussion about evidence rather than about a number.
| Team rating | Factor | Pre-money | Ownership for 1,500,000 |
|---|---|---|---|
| 75% | 1.005 | 6,030,000 | 19.92% |
| 100% | 1.080 | 6,480,000 | 18.80% |
| 125% | 1.155 | 6,930,000 | 17.79% |
| 150% | 1.230 | 7,380,000 | 16.89% |
The ratings move the answer by hundreds of thousands. The average moves it by millions: at a 4,000,000 average the same scorecard gives 4,620,000, and at 8,000,000 it gives 9,240,000. The single market input dominates every judgment in the table, so it deserves more scrutiny than any of them.
Using an average that is not comparable. A regional average that mixes post-money and pre-money figures, includes rounds with large SAFE stacks converting, or comes from a different year of the cycle, shifts the answer more than any rating can correct. The second mistake is generosity: rate every factor at 125 per cent and the company is worth 7,500,000, a quarter above the average, which is a claim that it is better than the typical seed company on every dimension at once. Most are not. Keep at least one rating below 100 per cent unless you can defend all of them in writing.
The scorecard gives a pre-money, not a share price. Before comparing it with a term sheet, check where the option pool sits: a pool topped up inside the pre-money lowers the effective valuation, as shown in how the option pool shuffle lowers the effective pre-money.
The book frames diligence as a set of numbers an associate should produce, not only opinions; the free workbooks for the book include its unit economics model and a blank set for your own companies.
The usual set is team 30 per cent, size of the opportunity 25, product and technology 15, competitive environment 10, marketing and partnerships 10, need for additional investment 5 and other 5. They sum to 100 per cent, so a company rated average on everything is valued at the average comparable pre-money, 6,000,000 in the illustrative case.
Berkus adds a value for each of five risk-reducing elements, each capped, usually at 500,000, so the result cannot exceed 2,500,000 whatever the market pays. In the illustrative case it gives 1,450,000, about 20.9 per cent of the scorecard's 6,930,000. The scorecard is anchored to current comparable rounds, Berkus to a fixed ceiling.
Nothing in the method prevents it, but each rating is a claim to defend. Reaching an 8,000,000 pre-money from a 6,000,000 average with the other ratings unchanged needs a team rating of 184 per cent, nearly twice the average seed team. If the evidence will not support that, the asking price is the problem, not the method.
This article is one calculation from The Venture Capital Associate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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