How I Value a Start-up (and Why EIS Isn’t the Point)
- Angel6
- Feb 3
- 4 min read
Angel investing in the UK has a peculiar feature: you can lose money in a way that feels tax-efficient. That’s not useless. But it is dangerous.
It’s led to a habit of investing because something is EIS or SEIS eligible, rather than because it’s a good business at a sensible price. EIS should be treated like air conditioning in a hire car: nice to have, not the reason you picked it.
So how do I actually value a start-up?
Not with anything exotic. No spreadsheets projecting wisdom about 2029. Mostly with a handful of blunt questions — starting with a big one: Is this a business yet, or just a plan with branding?
The real risk: no product–market fit
Most start-ups don’t fail because of fraud, bad luck, or competition. They fail because nobody wants the thing badly enough to pay for it.
A “good idea” proves nothing. We all have good ideas. I once had a very good idea for an app. Which is how I know this.
Revenue is the first piece of real evidence. It shows someone made a trade-off: they spent money on this instead of something else — or instead of spending nothing at all. No revenue means you’re not valuing a business. You’re valuing a hypothesis. That’s allowed. But the price should reflect it.
The three things that actually drive value
When I’m deciding what a start-up is worth today, I start with three things:
Revenue level
Revenue quality
Revenue growth
Everything else matters — market size, team, defensibility — but those are mostly narrative.
The three above are evidence.
Revenue level: the “is it real yet?” test
Early revenue bands aren’t magical, but they’re useful. A company doing £50k a year is fundamentally different from one doing £500k, even if both have impressive logos on their slide deck. Revenue doesn’t guarantee success. It does reduce the number of ways the business can be imaginary.
Revenue quality: not all revenue is the same species
£200k of revenue can mean very different things:
£200k of recurring subscription revenue, low churn, paid monthly; or
£200k of one-off services deals, closed personally by the founder, which vanish the moment they hire a salesperson who isn’t them.
Both are technically “revenue”.
Only one deserves a valuation that assumes the future improves.
So I look at:
recurring vs one-off
churn and retention
customer concentration (if one client is 30%, that’s not revenue — it’s a mood swing)
gross margin
whether the product is embedded (hard to remove) or optional (easy to cancel)
Revenue growth: the bit people oddly underweight
At early stage, growth isn’t a bonus. It’s the point.
A business growing from £100k to £160k has grown 60%. That sounds great — until you remember it still needs to be ten times bigger to matter. As a rough guide, below ~£300k I want to see something close to doubling, or a very clear line of sight to it, because once you hit £500k, growth stops being a percentage game and starts being about adding serious absolute pounds. The businesses that can do that usually show it early.
Market size: yes — but calm down
If the total market is genuinely £5–10m, that ceiling arrives quickly.
But the opposite mistake is the “£5bn TAM” slide, which often translates to “We haven’t decided who the customer is yet.”
I don’t pay a premium for a huge market unless there’s a credible wedge:
a niche they can dominate
distribution they already control
or a reason better-funded competitors won’t turn up and improve their weekend plans
Capital efficiency: can this survive real life?
Two simple questions:
If they fail to raise, do they die? Some businesses can slow down and survive. Others collapse the moment the fundraising music stops.
Does growth pay for itself? The polite version is LTV vs CAC. The honest version is: are they buying revenue with expensive marketing and calling it traction?
A valuation framework I actually use to value a start-up
No discounted cash flows. No pretending we know the terminal value of a company that hasn’t settled on pricing.
Instead: a simple matrix. Start with a baseline multiple from revenue level. Then adjust for quality and growth.
Step 1 — Revenue band (baseline multiple)
Assuming ARR or run-rate where it genuinely makes sense:
Revenue level | Baseline multiple |
£50k–£150k | 6× |
£150k–£300k | 8× |
£300k–£600k | 10× |
£600k–£1.0m | 12× |
Step 2 — Adjust for revenue quality
Quality | What it looks like | Adjustment |
Low | lumpy, services-led, churny, low margin, concentrated | ×0.7 |
Medium | improving mix, manageable concentration | ×1.0 |
High | recurring, low churn, embedded, high margin, diversified | ×1.5 |
Step 3 — Adjust for growth
YoY growth | Adjustment |
<30% | ×0.8 |
30%–80% | ×1.0 |
80%–150% | ×1.3 |
>150% | ×1.6 |
The formula
Valuation ≈ ARR × baseline multiple × quality adjustment × growth adjustment
It’s not perfect.
It is dramatically better than:“We’re raising at £10m because we need £1m and it sounds about right.”
Two quick examples
Example 1: decent business, ambitious price
ARR £200k
Baseline 8×
Quality: medium (×1.0)
Growth: 40% (×1.0)
→ ~£1.6m valuation
If they’re asking £6m, they’re not insane — but they are asking you to pay upfront for a lot of future success.
Example 2: properly investable
ARR £450k
Baseline 10×
Quality: high (×1.5)
Growth: 120% (×1.3)
→ ~£8.8m valuation
That’s something you can back without needing a speech to justify it.
The fastest ways to make me ignore the valuation
No revenue, but a “strong pipeline” (pipeline is a list of things that might happen)
Revenue that’s mostly founder-led services dressed up as product
One customer doing the heavy lifting
Flat growth explained by “we just need marketing”
Valuation set by fundraising needs, not evidence
The Angel6 angle
The goal isn’t to be clever. It’s to be consistent.
EIS helps. But it doesn’t fix overpaying, and it doesn’t create product–market fit. So the rule stays simple: back businesses with real pull, improving economics, and a valuation that leaves room for upside.
No heroics required!
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