Judging qualitative factors is the most common way for investors to determine whether they want to invest at the pre-seed or seed stage of development. As a result, most companies do not require a valuation when raising a pre-seed or seed round of capital i.e. they're going to be raising money with a convertible note or a SAFE. However, for the main investor at this stage when a pre-money valuation is required, a commonly used method is the Berkus method named after the Silicon Valley Angel Investor, David Berkus This method for valuing a pre-revenue company is a straightforward framework that has been used with occasional modifications by seed stage investors.

The framework evaluates five key risk factors of a startup company and assigns a dollar value for each risk that the company has mitigated or eliminated.

The five key areas evaluated are firstly, does the startup have a sound idea or a compelling business plan? Second, has the startup assembled a quality management team? Third, does the startup have a product or prototype that has been tested and used by the end user? Fourth, does the startup have strong strategic relationships, alliances, partners, or a burgeoning customer base already? And fifth, has the startup begun to execute on its revenue plan or product rollout, and has it demonstrated a path to profitability? The five key areas evaluated, can differ depending on the type of startup, and will be defined by the seed investor on a case by case basis.

In the original version of the Berkus method, each of the five key areas have a maximum $500,000 value, which would assign a theoretical maximum pre-money valuation of 2.5 million. This method can be modified for specific startup sectors, geographical locations, and average siege stage valuations by simply changing the theoretical maximum amounts and adjusting the value for each area. For example, if the average valuation for a startup in the B2B SaaS sector, so software as a service, if that average valuation has increased to $4 million, for example, then each of the five areas here would have a maximum value of $800,000. Other methodologies to value pre-revenue startups include the replacement cost method, which places a fair market value on all the costs and expenses associated with the startup or the valuation by stage method, which is similar to the Berkus method, but treats the five key areas as subsequent stages of development. Anna assigns a progressive valuation.