Valuing Early-Stage Startups in a VC Portfolio: When There's No Revenue, No Comps, and the Last Round Was 18 Months Ago

Quarterly reporting deadlines force VC fund finance teams to assign fair values to portfolio companies that may have no revenue, no comparable public companies, and no recent financing activity. When the last priced round closed a year or more ago, marking to the most recent transaction price often fails to satisfy fair value accounting requirements, or auditor scrutiny.

What Does Fair Value Mean for Pre-Revenue Portfolio Companies?

Fair value under ASC 820 is the price a market participant would pay to acquire an asset in an orderly transaction at the measurement date. For venture capital holdings, nearly all portfolio companies fall into Level 3 of the fair value hierarchy, meaning valuations rely on unobservable inputs rather than quoted market prices.

Traditional valuation approaches assume access to financial metrics, revenue multiples, EBITDA margins, discounted cash flows, that simply do not exist for companies still developing their first product. Most funds default to the most recent financing round price when one exists within a reasonable timeframe, but when 12 to 18 months pass without a new transaction, harder questions emerge.

How Does Calibration Address Stale Financing Rounds?

The AICPA's valuation guide outlines a calibration approach for situations where the last financing round is no longer a reliable fair value indicator. Calibration involves using the original transaction price to establish baseline valuation inputs, identifying the key drivers implied by that transaction, and updating those inputs at each subsequent measurement date to reflect changes in company performance and market conditions.

For a seed-stage SaaS company that raised at a $10 million post-money valuation 18 months ago based on early user traction, calibration might involve tracking comparable public company multiples, progress toward product-market fit, and changes in the broader funding environment. The original implied multiple becomes a reference point, adjusted for what has changed.

Early-stage investments often lack the financial metrics that make calibration straightforward. When there is no revenue to apply a multiple against, finance teams often turn to milestone-based assessments or qualitative indicators of progress.

What Valuation Methods Work for Pre-Revenue Companies?

OPM Backsolve — Used when a recent financing is available. Key inputs include transaction price, capital structure, time to exit, and volatility.

Milestone Analysis — Used when there is no recent financing but clear development stages exist. Key inputs include achievement of technical, regulatory, or commercial milestones.

Probability-Weighted Scenarios — Used when multiple possible outcomes are visible. Key inputs include scenario-specific exit values, probability weights, and discount rates.

Market Approach (Adjusted) — Used when comparable transactions exist. Key inputs include peer financing rounds and sector-specific adjustments.

The option pricing method (OPM) backsolve has become common for VC portfolio valuations. This approach uses the price of a recent preferred stock financing, along with the liquidation preferences and other terms in the capital structure, to derive an implied total equity value. The resulting value typically differs from simple post-money calculations because it accounts for the economic rights of different share classes.

What Triggers a Mark-Down Between Rounds?

Finance teams typically assess each portfolio company quarterly for indicators that might warrant adjustment. Common triggers for mark-downs include:

• Cash runway falling below 6–12 months without a clear path to additional financing

• Failure to meet key milestones that underpinned the prior valuation

• Material adverse changes in the competitive landscape or regulatory environment

• Significant departures from the founding team or key technical personnel

• Comparable public companies or peer financings reflecting meaningfully lower valuations

Industry data suggests VC managers hold portfolio companies at an average discount of roughly 20–25% to the last round price, though this varies across firms. When negative indicators emerge, some funds mark positions to zero even if the company has not formally shut down, a conservative approach reflecting the reality that distressed early-stage companies rarely achieve meaningful recoveries.

How Should Finance Teams Document Valuation Conclusions?

For stale rounds and pre-revenue companies, the documentation burden increases. Effective practices include maintaining a written valuation policy that specifies methodologies by investment stage, documenting the rationale for each quarterly valuation, retaining evidence of milestone assessments and market data considered, and preparing sensitivity analyses that illustrate how key assumptions affect the conclusion.

Both AICPA guidance and the IPEV Guidelines emphasize using consistent valuation techniques from measurement date to measurement date unless changes in market conditions or investment-specific factors would modify how a market participant would determine value. Switching methodologies between periods without clear justification typically draws additional audit scrutiny.

Regular communication with portfolio company management provides critical inputs for quarterly valuation, cash position, runway, key hires, customer traction. For companies that have gone quiet, publicly available sources and transactions involving comparable companies can provide supplemental context. Funds that establish clear policies, maintain consistent documentation, and stay connected to portfolio company management typically navigate audit season with fewer surprises.