If your business is bringing in an investor, valuation is often the hardest — and most important — point to agree on. But it differs in several key ways from the valuation you'd carry out if you were selling the entire business.

Short answer: In an ordinary business sale, the buyer typically weighs historical financials and current earnings heavily. In an investment, an investor weighs the business's future growth potential more heavily — because they're investing precisely to be part of that growth, not to take over a finished, mature business. That means an early, fast-growing business can often achieve a higher valuation in an investment than it would in a classic sale based purely on current earnings.

What does an investor look at?

  • Growth rate and scalability — how fast is revenue growing, and can the business model scale without proportionally rising costs?
  • Market size — how large is the overall market the business can grow into?
  • Team and ability to execute — has management shown they can deliver on the plan they present?
  • Current metrics — revenue, gross margin and any recurring revenue (e.g. subscription income) still weigh heavily, just not alone.

Methods often used for investments

In addition to the classic methods from our general guide to valuing a business (asset-based value, earnings-based valuation, comparable transactions), investments often use a forward-looking approach, where investor and founder negotiate a pre-money value based on expected future earnings, comparable investment rounds in the industry, and how much capital the business genuinely needs to reach its next milestone.

Why it often ends in negotiation, not a fixed answer

Unlike a sale, where there's a concrete set of accounts to work from, valuation before an investment is largely a question of expectations about the future — and there will naturally be disagreement about how likely those expectations are. It's therefore normal for the valuation to be negotiated rather than calculated precisely. Feel free to use our free valuation tool as a starting point for the conversation — but be prepared that the final price before an investment depends just as much on negotiation as on maths.

How to best prepare

Document your growth as concretely as possible — both historically and in the pipeline — and be ready to defend your assumptions about the future with data, not just optimism. If you're unsure how best to present it to an investor, also see our guide to building a pitch deck that captures investors.

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