The Berkus Method is a qualitative valuation approach for pre-revenue startups, created by angel investor Dave Berkus. It assigns value for reducing specific risks rather than discounting future cash flows.

How it works

Each of five elements earns up to a fixed score (historically on the order of half a million dollars each in classic formulations, with a total cap near a few million):

1. Sound idea — fundamental concept and market logic
2. Prototype — working product or technical proof
3. Quality management team — relevant execution track record
4. Strategic relationships — partners, channels, or advisors that de-risk GTM
5. Product rollout or sales — early customers or shipped product traction

Summing achieved buckets yields a pre-money valuation range suitable for seed or angel rounds when revenue multiples do not exist. Practitioners adjust bucket sizes for inflation and sector — biotech and deep tech may use different scales.

The method intentionally ignores hockey-stick spreadsheets common in pitch decks. Practitioners adjust bucket sizes for inflation and sector — biotech and deep tech may use different scales than consumer apps — but the core idea remains valuing risk reduction, not distant revenue fantasy.

Why it matters

• Founders: Use Berkus framing to show which risk buckets you have cleared when negotiating SAFE caps with angels.
• Investors: Provides a conversation structure for pre-revenue pricing; hot markets may still exceed Berkus caps based on competition.
• Operators: Milestones map cleanly to buckets — shipping MVP clears prototype credit.

Common mistake

Treating Berkus output as definitive fair value in competitive rounds. Market-driven caps from lead VCs often exceed Berkus sums when FOMO is high.

Related ideas

Pre-revenue valuation, SAFE valuation cap, scorecard method, and angel round pricing.