Navigating the valuation conundrum: Unravelling challenges and flaws within the startup’s valuation technique

Abstract

The environment of startups in the field of information technology (IT) is strongly connected with the dynamics of finance and valuation. IT startups sometimes rely on a variety of funding sources, including Venture Capitalists (VCs), Private Equity funds, Government subsidies, and even Hedge funds. Overvaluation has emerged as a key hazard harming the IT startup ecosystem. This phenomenon occurs when the valuation of a startup exceeds its true worth, which is frequently driven by enthusiastic investor optimism, market trends, and competitive pressures. The case addresses factors that might lead to overvaluation during funding rounds of startups. The case also explores various conditions like global economic slowdown, regulatory measures, sustainability of the product or idea of a startup that mitigates downturn of valuation. The measures from all the stakeholders of startups viz., investors, founders, governments etc. is dealt with for tackling the overvaluation conundrum.