How to Answer “How would you value a pre-revenue company in an interview?” in Investment Banking Interviews

Start with 1–2 clarifying questions so your approach matches the situation: What’s the product and go-to-market? What milestone is achieved (prototype, regulatory progress, signed pilots/LOIs)? What is the likely path to monetisation and the expected timing?

Then define what value means in context: enterprise value vs equity value, minority vs control, and whether this is for M&A, a financing, or internal underwriting. In pre-revenue company valuation, the answer often centres on equity value today, which depends heavily on future funding, ownership at exit, and probability of success.

State the principle upfront: with limited operating history, you’ll triangulate methods and present a valuation range with clearly stated drivers.

Explain how you’d build a simple, driver-based model that links milestones to an economic ramp. Use a top-down view (TAM/SAM/SOM) and a bottom-up build (customers or units × price) to estimate when revenue begins, how quickly it scales, and what long-run gross margin and operating leverage could look like.

Because uncertainty is high, outline 2–4 scenarios (e.g., success / partial success / failure, or downside / base / upside) with different launch dates, penetration, pricing, and margin trajectories. Keep it simple enough to sensitivity-test in an interview.

Call out the key drivers you’d pressure-test: time-to-commercialisation, conversion/retention, gross margin durability, and reinvestment intensity (R&D, sales & marketing, capex and working capital once scaling starts).

For valuing pre-revenue companies, you should explicitly triangulate:

• Probability-weighted DCF (PW-DCF): Forecast cash flows once revenue starts, probability-weight the scenarios, and discount at a risk-adjusted rate (often higher than a mature-company WACC due to execution risk). Keep terminal value conservative and run sensitivities on timing, margins, and the discount rate.
• Venture/exit method: Estimate exit-year revenue or EBITDA, apply an exit multiple anchored to relevant public comps, then discount back using a target return that reflects stage risk and expected dilution.
• Market evidence / comparables: Use the closest comps and private benchmarks (recent funding rounds or comparable transactions) and be explicit about adjustments for growth, business model differences, and risk.

Emphasise you’re not choosing a single “right” method—you’re reconciling the outputs and explaining why each is informative given the data.

Pre-revenue valuations can be very sensitive to the financing path. State that you’d model cash burn to the next inflection point(s) and estimate how much capital is required to reach commercial scale.

Then incorporate dilution: if multiple rounds are likely before exit, today’s equity value must reflect that future capital raises reduce current ownership. In an interview, you can do this at a high level (total capital needed, timing assumptions, and an implied post-money ownership progression).

This is a key investment banking interview strategy signal: it shows you understand why an attractive exit valuation can still imply a much lower value today once funding needs and survival risk are incorporated.

Close with sanity checks that tie the valuation back to operational reality: implied exit revenue versus market size, implied customer count versus feasible sales capacity, implied margins versus industry structure, and whether the outcome assumes an unrealistic share of category profits.

Cross-check against market clearing levels: step-ups between rounds, recent financings for similar stages, and whether the valuation supports a plausible investor return profile.

Deliver the output as a range with the 2–3 biggest levers called out (typically timing, probability of success, discount rate/target return, and exit multiple). This is often what differentiates strong valuation interview prep from a formula-driven answer.