What method is commonly used to value a pre-revenue internet company?

Valuing a pre-revenue internet company often relies heavily on user engagement metrics because traditional revenue metrics may not yet apply to such companies that have not yet begun generating revenue. In the absence of concrete financial performance data, user engagement metrics such as active users, growth rate, user acquisition cost, and retention rates provide vital insights into a company's potential market position and growth trajectory. These metrics help investors gauge how well the company is resonating with its target audience and can indicate future revenue-generating potential once the company begins to monetize its user base.

This approach allows investors to form a valuation based on the company's current activity and engagement with users, anticipating that strong engagement may eventually convert into revenue. Thus, user engagement becomes a critical factor in assessing the future viability and growth prospects of pre-revenue companies.