How to value a startup

What are you valuing, and why does purpose come first?

Purpose changes the answer before a single number is calculated. The same company can have a different correct basis of value depending on why the valuation exists:

• Employee share scheme, start up concession. The market value of an ordinary share in the company at the time the interest is acquired ¹. Safe harbour methods may be available if the company meets the LI 2025/19 conditions ^{2, 3}. See How ESS valuations work and ESS and ESOP valuations.
• Employee share scheme, outside the start up concession. The market value of the ESS interest itself. For an unlisted right that must be exercised within 15 years, the employee can generally choose between market value in its ordinary meaning and the value under the regulations, which still needs the market value of the underlying share as an input. The ordinary meaning must be used where the taxing point is the disposal of the right or share ^{4, 5}.
• A capital raise. The evidence usually includes the terms of the proposed or completed round, but a round price is evidence of value, not automatically the market value of an ordinary share (see the bridge below). See Capital raise valuations and A recent raise as valuation evidence.
• A founder or shareholder transfer. Often whatever the constitution or shareholders' agreement defines, commonly a form of fair value. In our view the clause should be read before a method is chosen: it can override the default approach. See Founder share transfers.
• A tax or restructure event outside the ESS rules. Market value in its ordinary meaning: what a hypothetical willing but not anxious buyer and seller would agree, at arm's length, at the valuation date, with no special value to a particular buyer ⁶. See Tax and restructure valuations.
• Financial reporting. Fair value under AASB 13, and option values under AASB 2, are offered as a service, scoped and quoted separately from our start up valuation packages, and are a different basis from market value for tax purposes ⁶.

Basis of value

The standard the valuation is measured against, for example market value for a tax purpose, or the value a shareholders' agreement defines for a transfer. Different bases can produce different figures for the same company on the same day.

In the glossary

Unit of value

What is actually being valued: the whole company (enterprise value), the total equity, one class of shares, a specific parcel, or an option or right. A percentage of the company is not automatically the same percentage of its equity value once class rights and dilution are taken into account.

In the glossary

A single report should answer one purpose. An ESS start up concession valuation and a shareholders' agreement exit price are different questions, even for the same company on the same day.

The start up fee tier follows the company's structure and the purpose, not this page: an ESS grant is a Standard start up valuation, while a transfer in a company with one share class and no SAFEs, convertible notes or ESS may be a Simple start up valuation. See Pricing for what each tier covers and the fee. Delivery time starts once payment and all required information have been received.

What valuation date applies?

A valuation is only ever correct as at a date, and only information known or reasonably foreseeable at that date should be used to reach it ⁶. Most engagements use the current date: the date of the ESS grant, the round, the transfer or the restructure. Some purposes call for a retrospective date, for example a valuation dated to an earlier grant; a retrospective valuation date is +$495 + GST per date (see Pricing). Delivery time starts once payment and all required information have been received. Using a later result, a later round or a fact nobody could reasonably have foreseen at the time is one of the common errors the ATO's guidance flags ⁶.

What evidence does a valuation rely on?

Method choice follows the evidence a company actually has, not the other way around. Before an engagement starts, we typically ask for:

None of this is collected through a form on this site. Once an engagement is agreed, documents are requested and exchanged through a private matter link, not uploaded here.

Which method suits each stage of a startup?

The methods that may be appropriate change as a company moves from an idea to a scaling, multi class capital structure. The table below is our own view of what tends to fit at each stage, not a fixed rule, and is not a substitute for looking at the actual evidence.

How do you bridge from enterprise value to equity value?

Whichever method reaches an enterprise value, the value of the operating business, that figure is not what shareholders can divide up. For a startup, the bridge turns on judgement calls a mature, profitable business rarely faces, chiefly what to do with unfunded convertible notes and SAFEs, and whether the cash position itself changes the answer:

• Treat each SAFE and convertible note on its actual terms. A note past its maturity date with no realistic prospect of a further round sits closer to a debt claim on the company. A note priced under a cap that a completed or highly likely round will trigger sits closer to a converting equity interest. In our view this depends on the note's own terms and the likely conversion trigger, not a blanket rule that all notes are debt or all notes are equity.
• Deduct what the company must repay in cash: bank or venture debt facilities drawn, and any founder or shareholder loan that is not being converted to equity.
• Add back cash held over and above what the business needs to fund its own runway, having regard to monthly burn. For a startup, cash is not only a bridge item, it is also a viability check. In our view, a business burning cash faster than its cash and any committed facility can sustain raises a real question about whether its current plan is viable, and that can change which methods are appropriate before allocation is considered.

How is value allocated across share classes?

Where a company has only ordinary shares, equity value divided by shares on issue is a reasonable starting point (before any parcel level adjustment, see below). Where preference shares, options or convertible instruments exist, that arithmetic overstates the ordinary share value, because preference terms usually rank ahead of ordinary shares in a sale or wind up.

We are not aware of any Australian standard that mandates one allocation technique. In our view, three approaches can be appropriate depending on the facts: a waterfall applied at an assumed exit, a set of probability weighted exit scenarios, or an option pricing based allocation. Where Method Two of LI 2025/19 is used for the start up concession, its formula prescribes the preference adjustment ³. Method One does not prescribe an allocation technique; the valuer must take the prescribed matters into account on a reasonable basis ³.

The figures below are fictional and are not market evidence.

Notice what the cap table alone does not tell you: it does not say what the Series A preference terms are (a liquidation preference, participation, anti dilution), and those terms, not the share count, usually move the ordinary share value relative to a simple pro rata split. See Ordinary vs preference shares for how those terms work, and SAFEs and convertible notes for how an unconverted SAFE or note is treated in the meantime.

Parcel level factors sit on top of the allocation: control or minority status, marketability, and any transfer restrictions in the constitution or shareholders' agreement. For LI 2025/19 Method One specifically, uplifts and discounts for control premiums, lack of marketability and key person risk must be taken into account on a reasonable basis ³. Outside that rule, how restrictions and minority status are treated depends on the purpose and the governing agreement; in our view a general rule of thumb does not belong on this page, because the actual clause governs.

Why does a valuation need a cross check?

Where a second method is available, the ATO's own guidance recommends using it as a cross check ⁶. For a startup this often means testing a DCF conclusion against a recent arm's length round, or testing a Method Two net assets figure against calibration to a round. In our view, a conclusion resting on a single method is harder to defend, particularly where forecasts or comparables carry real uncertainty.

The type of report also matters. APES 225 Valuation Services distinguishes three types of engagement: a valuation engagement, a limited scope valuation engagement and a calculation engagement ⁷. Our Simple and Standard start up valuations are a valuation engagement, as described in the APES 225 guidelines we follow. A start up matter in dispute or heading to court is a dispute or court expert report, $4,495 + GST, with delivery agreed before commencement. Delivery time starts once payment and all required information have been received.

How does each method actually work?

When is a recent transaction reliable evidence?

A completed, arm's length funding round is real evidence, and often the best evidence a startup has. It still needs adjustment before it becomes an ordinary share value: the round price usually attaches to a preferred or convertible instrument, the deal may have been priced some time before the valuation date, and conditions can move between the two. There is no ATO rule that equates a recent round price with the market value of an ordinary share ^{2, 6, 8}; in our view, a round priced by related parties carries less weight as evidence ⁶. See A recent raise as valuation evidence for how we weigh this evidence in practice.

What is the venture capital method, and what does it show?

The venture capital method works backward from an assumed future exit value, applies an investor's required return, and solves for what an investor should pay today. It is a pricing tool investors use to decide what they are willing to offer, not a market value conclusion of the kind a valuation report reaches. In our view it is useful as a cross check on the logic behind a round, not appropriate as the primary method in a tax or ESS grade valuation.

When does a discounted cash flow model suit a startup?

A DCF model discounts a company's forecast future cash flows back to the valuation date. For a startup, two adjustments matter that a mature company's model does not usually need: milestone risk (a product approval or a first material contract is closer to a binary outcome than a smooth trend, so weighting an achieved and a not achieved scenario shows this better than one forecast) and a runway check (does cash position and burn rate actually support the forecast). A DCF on its own is not one of the two methods approved by LI 2025/19. Method One must take into account, on a reasonable basis, four prescribed matters, one of which is the present value of anticipated future cash flows, and must be endorsed by a written resolution of the directors ³. The ATO gives a DCF as an example of an alternative method. An alternative method keeps safe harbour protection only if it produces a value not less than an approved method the company was eligible to use ^{2, 9}. It is not automatically the right primary method for a company with no revenue history to forecast from.

Both the Simple and Standard start up valuation tiers include the signed valuation and the company's own DCF model as part of the fee. See Pricing for what each tier covers, the fee and the delivery basis. Delivery time starts once payment and all required information have been received.

When does the net assets method apply?

The net assets method values equity as a company's assets less its liabilities, adjusted for any amount needed to satisfy preference share obligations before the remainder is divided among the shares that participate in a wind up. It suits a company with little or no trading history, where forecasts would be speculative.

For the ESS start up concession specifically, Method Two of LI 2025/19 values an unlisted ordinary share as net tangible assets (disregarding preference shares), less the amount needed to discharge preference share obligations, divided by the ordinary shares plus any preference shares that participate in residual assets on a winding up ³. Method Two only applies where the company has not raised capital (debt, equity or both) of more than $10 million in the 12 months before the valuation time, is incorporated 7 years or less or is a small business entity, and has prepared or will prepare a financial report for the year ³ (current from 1 October 2025, last checked 27 September 2026).

When do market approaches apply?

A market approach values a company by reference to earnings or revenue metrics observed in comparable completed transactions, or less often, comparable listed companies. It depends on genuinely comparable data existing, often the harder part for an early stage Australian company: much available data is overseas or listed at a different scale, and size, stage and liquidity adjustments can end up doing more work than the multiple itself. We treat it as most useful once a company has enough revenue history to mean something, and as a cross check rather than the sole basis for a pre revenue conclusion.

Which methods might apply to your position?

The Method Selector below asks about your purpose, stage, revenue position and any recent funding round, then shows which methods may be appropriate and what evidence we would need. It never produces a dollar figure, a multiple or a discount, and it flags separately where a court or dispute purpose applies, or where the directors cannot reasonably anticipate that there will be no change of control within 6 months ³.

What mistakes come up most often?

FAQs