Determinants of Valuation of Early-Stage High-Growth Start-Ups

Abstract

This MBA dissertation examines the determinants of valuation of early-stage high-growth start-ups. This area of valuation is different from valuation of other types of companies, in that there is little to no historic financial data available and in most cases no plausible cash-flow projections to base a valuation on. Current valuation models base mainly on financial data, which makes it hard for them to explain the value of such young companies.The financial and nonfinancial determinants of valuation that currently exist in academic and practitioners’ literature are researched and developed into 39 hypotheses of possible determinants of valuation used by practitioners appraising these start-ups. The hypotheses are grouped in four distinct domains that arose for the literature review: People, Technology, Market dynamics and Cash flow.The hypotheses are surveyed in form of an internet mediated questionnaire, asking practitioners to assign levels for every determinant on a six-level Likert-like scale, and to assign a relative importance to every one of the four domains.The survey results are analyzed by calculating median, mean and mode and ranking the determinants by their median and mean. Diverging stacked bar charts visualize the results and show how close together the rankings of the validated determinants lie.Of the 39 developed hypotheses for possible determinants, 34 are validated. 27 of them have a mode of high contribution to start-up value or higher. So no highlight can be placed on any group of determinants or domains.While this research has established the determinants employed by practitioners, it also shows that valuation is a complex topic, no single domain holds the answers to valuation, and that further research is needed to develop the determinants into a valuation framework that will be enable practitioners to determine a start-up’s monetary value.