Bill Sahlman (HBS) · 1987
VC Method
The canonical formula for fund-managed venture capital. Stricter discipline than founder-anchored methods because it ties valuation to a specific fund return target.
Best for
Late-seed and Series A onwards. Anchors on exit value and target VC return.
Formula
Pre-money = (Exit value / Required ROI) - InvestmentInputs needed
- Projected exit value at exit year
- Target multiple (e.g. 10x for Series A)
- Investment amount
- Expected dilution between now and exit (typically 50-70%)
Caveats
- Wildly sensitive to exit-value assumption — change exit from $200M to $500M and pre-money triples
- Required ROI varies by stage (seed 30%+, Series A 10x target, Series B 5x target)
- Adjust for expected future dilution before working back to pre-money
Source
↗ https://gust.com/blog/startup-valuations-101-the-venture-capital-method/Verified 2026-06-03.
Other methods