The Seven Deadly Sins of Start‐Up Valuation

Abstract

Valuing start‐ups is different from most other valuations because the information available on start‐ups is limited, the business models are usually not yet stable, and maturity may be far off. In this setting, it is difficult to identify listed assets or comparable transactions, much less provide credible forecasts of cash flows. Despite such difficulties, the value of the shares in a start‐up can be estimated by applying the standard financial framework while adapting the valuation methodology to the context. To help practitioners value start‐ups successfully, the authors highlight “seven common errors to be avoided” from their practical experience.