Startups are naturally risky, and a startup valuation is probably closer to an art than a science. However, it can be made less based on “gut feelings” by carefully assessing the several elements that would have the strongest impact on the venture success. In this document, we have identified 7 key elements that we believe investors should look for, when evaluating a startup: team, problem, solution, strategy and marketing, scalability, strategic fit, return vs. risk.

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How To Evaluate a Startup
Andrea Boeri

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Andrea Boeri
• Executive summary
• The 7 key elements investors should look for when evaluating a startup
• 1. What makes a startup team potentially great?
• 2. Is the problem to be solved worth the effort?
• 3. Is the proposed solution unique and sustainable?
• 4. Are the startup’s strategy and marketing compelling enough?
• 5. Is the business model scalable?
• 6. Does the startup fit our investment strategy?
• 7. Is the potential return on investment attracting enough considering the risk?
• Conclusions and bibliography
Index

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Andrea Boeri
This short document present a few findings about how to evaluate a startup. We first identify 7 key elements that we
believe investors should look for, when evaluating a startup. Then we look at each of them separately.
• Team. It’s the integrated presence of several features shown by the entrepreneur, the full time team and the advisors
which makes a startup team potentially great.
• Problem. Is the problem to be solved worth the effort? The answer depends on the presence of a real market
opportunity, its size and growth trend, and the possibility to address environmental and / or societal problems beside
pursuing financial gains.
• Solution. Is the proposed solution unique and sustainable? The presence of a strong and distinctive problem / solution
fit needs to become more and more evident and solid as the startup progresses along the development path.
• Strategy and marketing. A strong problem / solution fit isn’t enough if not supported by clearly defined and viable
strategy and the go-to-market model.
• Scalability. If a business model is scalable, it means that the startup will be able to grow rapidly also in adjacent
markets and / or internationally without excessive technological, structural or regulatory constraints.
• Strategic fit. When the investment is made by a larger company also with industrial (beyond the purely financial)
objectives, the acquiring company should check whether the startup fits the corporate investment strategy.
• Return vs. risk. Startups are naturally risky. To understand whether the potential return from investing in a startup is
worth its risk, several activity and impact / financial metrics should be considered.
In conclusion a startup valuation is probably closer to an art than a science. However, it can be made less based on “gut
feelings” by carefully assessing the several elements that would have the strongest impact on the venture success.
Executive summary

4. 4
Andrea Boeri
• What makes a startup team potentially great?
• Is the problem to be solved worth the effort?
• Is the proposed solution unique and sustainable?
• Are the startup’s strategy and marketing compelling enough?
• Is the business model scalable?
• Does the startup fit our investment strategy?
• Is the potential return on investment attracting enough
considering the risk?
The 7 key elements investors should look for when
evaluating a startup
Team
Key element Key question
Strategy and
marketing
Problem
Scalability
Strategic fit
Return vs. risk
Solution
1
2
3
4
5
6
7

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Andrea Boeri
• Is there a complete team with relevant experiences
for the identified market opportunity?
• How strong is each team member if measured along
the following dimensions?
✓ Hands-on entrepreneurship (exploration of revenue
streams, “doer”, financial pragmatism)
✓ Technical know how
✓ Client/user centricity (comfortable approaching and
engaging customers, market / industry knowledge)
✓ Diplomatic and networking skills (useful when
dealing with corporate clients / partners)
✓ Personal agility and motivation (always looking for
feedbacks to improve products and self, openness)
• Are team members’ personalities compatible?
• Is there a continuous learning mindset?
What makes a startup team potentially great?
Entrepreneur Advisors
• Are they Board
Members and /
or Shareholders?
• How engaged
(e.g. timewise)
are they?
• Can they provide
mentorship and/
or some
commercial
network?
• Character and personality
✓ Personal integrity and
commitment
✓ Leadership capabilities
✓ Experience, track record,
technical and business skills
✓ Capability to sustain effort
• Confidence
✓ Persuasion in discussing
venture
✓ Capability to evaluate and
react well to risk
• Coachability
✓ Willingness to listen and
learn
Source: Board of Innovation, Startup Investment Guide, www.boardofinnovation.com; Judy Robinett, Crack the Funding Code. What
Investors Think and What They Need to Hear to Fund Your Startup, 2019
Full time Team
It’s the presence of all or most of these features which makes a startup team potentially great
1

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Andrea Boeri
Is there a market opportunity?
• Do potential customers think that this
is a major problem (a “pain”)?
• Why the existing solutions do not
adequately address the customers’
pain?
Is the market opportunity
compelling enough?
• Is the Total Addressable Market (TAM)
large enough? Is it growing?
• Within TAM, is the Serviceable Obtainable
Market (SOM - the market realistically
reachable in the short–medium term)
large enough?
Problem
worth the
effort
Is the problem to be solved worth the effort?2
Is there a environmental
and/or societal impact?
• Would the solution of this problem
bring also non financial benefits
(environmental, societal) to people
and communities?

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Andrea Boeri
Does the proposed solution solve the identified problem for enough clients? Is the solution sufficiently
differentiated? The answer to this question ultimately relies on the existence of a clear problem / solution fit,
which needs to become stronger and stronger as the startup progresses along the development path
Is the proposed solution unique and sustainable?3
Evidence of
problem/
solution fit
Strong
Weak/ In
progress
Later stage
venture/ SME. High
revenue growth
and clear path to
profitability
Maturity: significant
traction, scalability,
operational efficiency
Problem/ solution fit
validated
Maturity established
market position,
scalable growth
Problem/ solution fit
validated
Startup development stage
Conceptual: Early
stage pre-startup.
Exciting business
idea or plan
Launch: Early stage/
Startup infancy.
Prototype, MVP and
key management
Startup: Increased
credibility. Live
product/ service
and initial
revenues
Venture growth:
sustainability and
scalability. Growing
revenues and some
key partnerships
Maturity: concept/
idea
Problem/ solution fit
in progress
Maturity: idea
launched
Problem/ solution fit
being optimized
Maturity: operational
efficiency, potential
to scale
Problem/ solution fit
validated
Source: Board of Innovation, Startup Investment Guide, www.boardofinnovation.com; CP Ventures, An Easy Guide on How To Evaluate
Your Startup using the Valuation Canvas, https://cp.ventures/blog/evaluate-your-startup-valuation-canvas/

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Andrea Boeri
❑ Does the company focus on a specific niche or a
limited number of market segments, clearly identified?
❑ Has a sustainable competitive advantage vs.
competitors been identified?
❑ Does the company have a clarified and viable
business model, with a well defined supply chain?
❑ Doe the company hold patents or trademarks?
❑ Has the company a demonstrated earning potential?
If not, can the company demonstrate the results from
the capital invested (MVP, prototypes, customers…)
❑ Has the company a clear idea of the present and future
financial needs and their purposes?
❑ Is there a defined exit strategy?
Are the startup’s strategy and marketing compelling
enough?
4
Strategy Go to market
❑ Has the company clearly identified the target
customers?
❑ Is the demand (volume, price, mix) expected to be
generated by these target customers enough to
support the company’s growth and profitability
objectives?
❑ Is an adequate marketing operational plan in
place to address, cultivate and acquire those target
customers?
❑ Is customer traction growing at a rate in line with
the company’s expectations and plans?
❑ Is the sales team adequately staffed and supported
by a structured salesforce management system?
It’s the presence of all or most of these features which makes a startup’s strategy and marketing
compelling enough for an investor

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Andrea Boeri
If a business model is scalable, it means that the startup will be able to grow rapidly also in adjacent
markets and / or internationally without excessive technological, structural o regulatory constraints
Is the business model scalable?5
Examples of a scalable business model
❑ A patented technology can be applied to
different uses, for several customers in
diverse sectors
❑ An IT platform can support the growth of a
delivery network without specific limits
❑ The same product can be sold internationally
❑ A distribution network can carry additional
product lines
Examples of a non scalable business model
❑ A technology can be applied only to a limited
market niche
❑ The differentiating capabilities are owned by a
single person or a very small group, and they
cannot be easily transferred
❑ A product needs extensive modifications to
be sold in different countries
❑ A distribution network is tuned to carry only a
limited set of products

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Andrea Boeri
Driving advances strategy of current business
Does the startup fit our investment strategy?6
Map of possible Corporate Venture Capital investments
When the investment is made by a larger company also with industrial (beyond the purely financial)
objectives, the acquiring company should check whether the startup fits the corporate investment and
innovation strategy
Corporate investment objective
Strategic Financial
Link to
operational
capability
Tight
Loose
Driving
Investment in startup advances
strategy of current business
Example: Facebook acquisition of
face.com, a face recognition platform
Emergent
Investment in startup allows exploration
of potential new businesses
Example: Facebook acquisition of
WhatsApp
Enabling
Investment in startup complements
strategy of current business
Example: Facebook acquisition of
Oculus, a virtual reality company
Passive
Investment in startup provides financial
returns only
Source: Henry W. Chesbrough, Making Sense of Corporate Venture Capital, Harvard Business Review, March 2002; Board of Innovation,
Startup Investment Guide, www.boardofinnovation.com

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Andrea Boeri
Later stage
venture/ SME
Startup development stage
Conceptual: Early
stage pre-startup
Launch: Early stage/
Startup infancy
Startup: Increased
credibility
Venture growth:
sustainability
Is the potential return on investment attracting
enough considering the risk?
7
To understand whether the potential return form investing in a startup is worth its risk, several activity and
impact / financial metrics should be considered. The relative importance of activity metrics should decrease
vs. that of impact / financial metrics, as the startup grows
Source: Adapted from Board of Innovation, Startup Investment Guide, www.boardofinnovation.com
Impact/
financial
metrics
Activity
metrics
• # of customer interviews
• # of customer problems identified
• # of jobs-to-be-done identified
• # of prototypes developed
• # of insights gathered
• …
• # of experiments run
• Ideas patented
• Grants awarded and prizes won
• …
• Revenue per customer
• Customer lifetime value
• Customer acquisition cost
• Conversion rate
• …
• # of recurring customers
• # of new patent filings
• …
• # of concepts in pipeline
• Average amount spent per stage
• # of MVPs made
• Burn rate
• …
• Customer satisfaction
• Revenue and growth rate
• Reduction of unit cost
• Loss reduction/profitability growth
• Increase in NPV
• …

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Andrea Boeri
7 A few common methods of startup valuations
Discounted Cash Flow (DCF)
• Based on future expected cash flows,
discounted at venture’s weighted average cost of
capital (WACC)
• It can be applied only when a reliable business
plan is available
• Calculation of the “terminal value” (and especially
of the long term growth rate) can be difficult, even
when using a range of worst – base - best cases
• Also, calculation of WACC (and especially of the
cost of equity) is often a rough estimate
Comparable Transactions
• It is often possible to find one or more indicators
which could be used as a good proxy to calculate the
value of the target startup
• This indicator can be industry-specific (e.g. monthly
recurring revenue for Saas, patent filed for medtech,
…) or based on P&L lines (sales, gross margin, …)
• By calculating average ratios between the company
values in comparable transactions and the values
for the selected indicators in those transactions,
the target startup can be evaluated
Scorecard Valuation
• It uses the average pre-money valuation of other
comparable startups, valuing the target startup
against this benchmark, via a scorecard
• The scorecard is based on elements such as those
presented in this document, with each one receiving
a % weight (the total being 100%)
• A factor (usually in the range 0+ to 2) is assigned to
each of the above elements for the target startup.
The resulting sum is finally multiplied by the
average pre-money valuation of comparable startups
Source: Joachim Blazer; EU-Startups; Founder’s Pocket Guide; Investopedia; Medium; Judy Robinett (see Bibliography)
Valuation by Development Stage
• This approach uses a range of "rule of thumb"
values pre-set by the investors, depending on the
startup's stage. The further the company has
progressed along the development pathway, the
lower the company's risk and the higher its value
• A valuation-by-stage model might look something
like (using stages presented in this document):
✓ Conceptual: USD (or €) 250,000 - 500,000
✓ Launch: USD (or €) 500,000 - 1 Million
✓ …

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Andrea Boeri
Later stage
venture/ SME
Startup development stage
Conceptual: Early
stage pre-startup
Launch: Early stage/
Startup infancy
Startup: Increased
credibility
Venture growth:
sustainability
Suggested methods of valuation as a startup matures7
Valuation by Development Stage
Comparable Transactions
Scorecard Valuation
Discounted Cash Flow
In a very early
stage, investors
tend to apply “rule-
of-thumb”
valuations, as other
methods are just
not workable
Once the startup begins to show some
metrics, it becomes possible to refer to
comparables and benchmarks, either
through a scorecard valuation method or
directly, via comparable transactions
At this stage,
activity and impact
metrics are mostly
used to compare
startups
At this stage,
financial metrics
are mostly used to
compare startups
The DCF method gains traction as the Business Plan
projections become more meaningful and reliable,
being based no longer on leap-of-faith assumptions, but
on track record, customer contracts, patent filings, etc.

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Andrea Boeri
In a nutshell, we have identified 7 key elements that we believe investors should look for, when
evaluating a startup: team, problem, solution, strategy and marketing, scalability, strategic fit,
return vs. risk. Startups are naturally risky, and a startup valuation is probably closer to an art
than a science. However, it can be made less based on “gut feelings” by carefully assessing
the several elements that would have the strongest impact on the venture success.
Thank you for your kind attention
Conclusions
I am a senior manager, an advisor and a mentor. I focus on strategy, innovation, performance
improvement, financial services and technology. In my 34 years of international experience, I
have served as a senior partner in strategic consulting, as a senior manager in financial services,
and as a co-founder and mentor of a technology-based start-up. In all roles (advisor, manager,
mentor), I help companies innovate, transform and grow.
You can find my LinkedIn profile at https://www.linkedin.com/in/andrea-boeri-6a33b124/
Andrea Boeri
Milan, October 6, 2019

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Andrea Boeri
• Board of Innovation, Startup Investment Guide, www.boardofinnovation.com
• Andrea Boeri, Effective Design of Innovation Labs, LinkedIn SlideShare, August 2019
• Andrea Boeri, When You Need a Chief Innovation Officer, LinkedIn SlideShare, September 2019
• Joachim Blazer, The #1 Guide to Startup Valuation. How to Value Your Startup in 12 Easy Steps, 2018
• Jason Calacanis, Angel. How to Invest in Technology Startups – Timeless Advice from an Angel Investor, 2017
• Henry W. Chesbrough, Making Sense of Corporate Venture Capital, Harvard Business Review, March 2
• CP Ventures, An Easy Guide on How To Evaluate Your Startup using the Valuation Canvas, https://cp.ventures/blog/
evaluate-your-startup-valuation-canvas/
• Eva de Mol, What Makes a Successful Startup Team, Harvard Business Review, March 21, 2019
• EU-Startups, The most common ways on how to evaluate early-stage companies, October 2, 2018, https://www.eu-
startups.com/ 2018/10/the-most-common-ways-on-how-to-valuate-early-stage-companies/
• Founder’s Pocket Guide, Startup Valuation, 2017
• Investopedia, Valuing Startup Ventures, May 8, 2019, https://www.investopedia.com/articles/financial-
theory/11/valuing-startup-ventures.asp
• David Kidder and John Geraci, To Innovate Like a Startup, Make Decisions Like VCs Do, Harvard Business Review, May 7,
2018
• Derek Lidow, Ditch the Start-Up Pitch, Harvard Business Review, August 1, 2014
• Medium, Valuation For Startups — 9 Methods Explained, June 14, 2016, https://medium.com/parisoma-blog/valuation-
for-startups-9-methods-explained-53771c86590e
• Eric Ries, The Startup Way. How Modern Companies Use Entrepreneurial Management to Transform Culture and Drive
Long-Term Growth, 2017
• Judy Robinett, Crack the Funding Code. What Investors Think and What They Need to Hear to Fund Your Startup, 2019
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