First Chicago Method

How It Works

The First Chicago Method builds three scenarios for your startup — best case, base case, and worst case — each with its own projected valuation at exit. These valuations are typically calculated using another method (such as Revenue Multiple or DCF) under different assumptions. Each scenario is assigned a probability weight, and the final valuation is the probability-weighted average. The formula is: Valuation = P(best) × V(best) + P(base) × V(base) + P(worst) × V(worst). The probabilities must sum to 100%.

When It's Useful

Use the First Chicago Method from seed through Series B when you want to account for uncertainty in your startup's trajectory. It is particularly valuable when reasonable people might disagree on growth projections — rather than arguing over a single forecast, you model the range. It is ideal for European startups where geography significantly impacts success probability. Investors often use this method internally, so understanding it helps you anticipate how they think about risk.

European Context

The First Chicago Method's scenario probabilities are calibrated for European market realities through the 5-tier geography system. In Tier 1 markets (UK, Germany, France), worst-case probability is weighted at 25%, while Tier 5 emerging markets weight worst-case at 40% due to late-stage capital scarcity and smaller exit markets. This reflects the fundamental reality that European startups outside top-tier hubs face harder fundraising environments and fewer exit opportunities. The scenario-based approach is particularly valuable in Europe where the range of outcomes varies more dramatically by geography than in the more homogeneous US market.

Key Parameters

Example

A Tier 3 seed-stage startup models three scenarios. Best case (20% probability): EUR 8M exit. Base case (45%): EUR 3M. Worst case (35%): EUR 500K. Valuation = (0.20 × EUR 8M) + (0.45 × EUR 3M) + (0.35 × EUR 500K) = EUR 1.6M + EUR 1.35M + EUR 175K = EUR 3,125,000.