Valuation of Growth START-up: A New Approach By Drawing Analogies and Variations Among Existing Methods

Abstract

The valuation of a budding start-up is a complex task for researchers, academicians, and practitioners because of its inherent nature of high growth potential and high risk, uncertainty. These characteristics of the startup make traditional valuation methods inappropriate for startup valuation. Without comprehensive assimilation of business models and underlying value drivers at every stage, the process of valuation can become an unrealistic and difficult task. In this context, the current study elucidates various valuation methods and their appropriateness in start-ups with the help of a literature review. Different types of valuation methods of growing start-ups were compiled from established research literature and focus was given to valuation methods like DCF method, Venture Capital Method, Revenue multiple methods, Real options valuation method, binomial tree structure, and First Chicago method. Secondly, the possible methods of modifying the assumptions of these models are proposed in this study to improve the accuracy of valuation. Finally, this study also identifies the significance of the supplementary role of non-financial information in the valuation process.