Last Updated on 22/08/2025 by Damin Murdock
Valuing shares in a startup during its early stages is one of the most important and most challenging steps for founders, investors, and stakeholders. Unlike publicly traded companies with market-driven prices, startups typically have no trading history or revenue benchmarks, making valuation a complex but essential exercise. This article outlines the key methods and considerations for determining the value or price of shares in early-stage Australian startups.
Why Valuation Matters
Accurate valuation is crucial when:
- Bringing on co-founders or employees under equity arrangements.
- Raising funds from angel investors or venture capitalists.
- Selling or transferring shares.
- Complying with tax obligations or regulatory requirements.
An overvalued startup may deter investors, while undervaluation can result in founders losing control or diluting equity prematurely.
Common Valuation Methods for Startups
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Discounted Cash Flow Analysis
The Discounted Cash Flow (DCF) method calculates the present value of expected future cash flows, adjusted for risk. While DCF is widely used in valuing mature companies, it can still be useful for startups with a defined business model or financial forecasts. For example, in resource-based sectors, DCF often forms the core of a company’s net asset valuation, supported by analysis of liabilities and non-operating assets.
However, early-stage startups may find it difficult to project reliable cash flows, making DCF less practical unless there is solid data behind revenue assumptions.
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Expert Valuation
Startups frequently rely on professional valuation experts, especially when there is no established market price for shares. Expert valuations are based on a combination of methodologies and require deep knowledge of industry trends, startup life cycles, and applicable legal standards.
The courts have acknowledged that valuations are not exact sciences. The focus is on realistic, reasoned assessments rather than mathematical precision, making the choice of a qualified expert particularly important.
Factors That Influence Startup Valuation
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Market Context
The share price of listed companies doesn’t always reflect true value. Factors such as investor sentiment, speculation, and short-term market reactions can distort perceived value. This principle also applies in reverse, just because a startup isn’t publicly traded doesn’t mean it has no measurable worth.
Events such as capital raisings or media announcements can cause valuation fluctuations without materially changing the business itself. It is important to distinguish between short-term and long-term fundamentals when setting a share price.
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Internal Company Factors
Several core elements determine the internal valuation of a startup:
- Tangible and intangible assets.
- Intellectual property and proprietary technology.
- Revenue potential and market size.
- Founding team experience and capability.
- Customer traction or contracts in place.
The overall valuation should reflect a balance of current resources and future potential.
Key Legal and Strategic Considerations
Timing Is Crucial
The date of valuation has a direct impact on price. Business milestones, funding rounds, or external market shifts can significantly alter perceived value within short periods. Clearly defining the valuation date ensures transparency and accuracy, particularly for legal and tax purposes.
Documentation and Assumptions
Whether you use DCF, a multiple-based method, or an expert’s opinion, thorough documentation is essential. You need to clearly record the assumptions used, the method applied, and any external data relied upon. This documentation is critical if the valuation is ever reviewed by investors, regulators, or tax authorities.
Flexibility and Multiple Opinions
It is not uncommon for different valuation methods to yield different results. Seeking more than one valuation, particularly before a major transaction or equity issue, can help ensure your pricing strategy is well-founded and justifiable. In past legal cases, courts have recognised the value of expert input, especially in situations where shareholder interests are involved.
Conclusion
Determining the price of startup shares in the early stages requires a combination of art and science. From using financial models like DCF to engaging valuation experts, founders must weigh internal business factors and external market conditions to arrive at a defensible figure. Given the complexity, seeking professional advice is highly recommended to ensure your valuation approach meets legal, strategic, and investor expectations.
Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.
DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.
Damin Murdock (J.D | LL.M | BACS - Finance) is a seasoned commercial lawyer with over 17 years of experience, recognised as a trusted legal advisor and courtroom advocate who has built a formidable reputation for delivering strategic legal solutions across corporate, commercial, construction, and technology law. He has held senior leadership positions, including director of a national Australian law firm, principal lawyer of MurdockCheng Legal Practice, and Chief Legal Officer of Lawpath, Australia's largest legal technology platform. Throughout his career, Damin has personally advised more than 2,000 startups and SMEs, earning over 300 five-star reviews from satisfied clients who value his clear communication, commercial pragmatism, and in-depth legal knowledge. As an established legal thought leader, he has hosted over 100 webinars and legal videos that have attracted tens of thousands of views, reinforcing his trusted authority in both legal and business communities."
