One of the most challenging questions to answer for early stage companies. The established valuation models only work for established markets.

The real startups often try to address needs before a market forms. Or try to destroy a market and establish a new one.

The method I find useful is the following:

Get some assumptions around the market size from expert discussions, studies, the internet etc. It is for later to justify the valuation for yourself and potential investors.

Set up a milestone plan with 3-5 major steps to get to your market - in b2c sales - in b2b a license deal or similar.

Calculate the cost estimation for reaching each milestone. Startups should have some experts on board (founders) who have an understanding of the industry they try to disrupt.

If you stall here because you have no clue - don't talk to investors. You'll never make it beyond the ideation step.

A founding team of industry veterans won't have a problem to bring in know how and network to get those 3-5 ballpark numbers.

For example for a drug development company:

We have technology xyz that can treat disease abc and 1,000 others.

We need 3 million to get to milestone 1 - clinical candidate (or fail at 3 million)

10 million for milestone 2 (clinical study 1 done - or have burned 13 million and fold the company)

50 million for proof of concept in patients

And can sell the entire thing or start giving licenses to the industry since we can file 10,000 patents on the way.

The marketsize is indefinite since it can treat all exisiting diseases.

Gene Editing could be such a case. The two public companies now have

Assign a 20-30% dilution to each ballpark number - and as a result you get your valuation.

In the first round of the example above it would be a Series A for 3 million at a pre-money valuation of 12 million (aiming at the 20% dilution)

20-30% is generally accept by investors who know how to invest in private tech companies. Anything below 20% doesn't get investors interested, anything above 30% will slowly kill the founders motivation to deliver - it is just human nature.

Before you reach out to investors - do your sanity check. Does the market size seem reasonable for the number of rounds and the money you need to get to your market point?

Eg when you need to burn 1 billion capital to get into a market that is a maximum of 100 million, and you assume you can capture 10% of the market - does that look like a reasonable investment case worth presenting to investors?

Whereas - when you need to burn 20 million to unlock a not existing market of 10 billion and potentially capture 80% before competition gets going - who does this story look?