Start-up Values Research Articles

What drives startup valuations?

We find that valuations of Venture Capital-backed startup companies invested by mutual funds are driven by their peer valuations rather than their fundamentals, such as operating performances. As startups oftentimes experience substantial valuation changes at their Initial Public Offerings (IPO), we also investigate the share pricing transition of startups from private to public companies. We find that more active pricing of shares prior to the IPO correlates with smaller discrepancies between private and public valuations as well as lower IPO mispricing, suggesting a link between private and public market pricing efficiency. Jointly, our results help investors and regulators achieve a better understanding of the dynamics behind misvaluation in private assets in general, and startups in particular.

Dependence of Investing Strategies on Expected Discounted Rate

The Discounted Cash Flow model is a cornerstone in the fields of corporate finance and investment valuation, serving as a crucial decision-making tool for stock valuation. Driven by the motivation of searching for the dependence of different investing strategies on expected discounted rates, the article compares the valuations of two types of hypothetical net free cash flows under the same fluctuation of discounted rates, representing the stable and aggressive growth of companies. Modeling studies are then supported by regressing different representative indexes on the yield-to-maturity of China's 10-year treasury bond. A larger dependence on treasury yield is shown in valuable stocks than in grow-up stocks. The work uses a hypothetical model to explain this phenomenon from the perspective of investors. Valuable stocks investments give greater weight to assessments of the macro environment because of lower sensitivity and predictable patterns, whereas grow-up stocks investors base their careful assessment of the volatile valuation of start-ups less on the standard rate, even though it implies a risk-free rate.

Macro and Micro Factor Influencing Tech Startup Valuation of Private Markets in ASEAN Countries

Startups in ASEAN countries, including Indonesia, Malaysia, Singapore, Thailand, Vietnam, and the Philippines, have grown rapidly over the past five years. However, the current global economic uncertainty has created an imbalance that affects the budding startup ecosystem in ASEAN. A study used econometrics software and secondary data to understand how macroeconomic factors like GDP growth, country risk premium, and initial capital increases affect startup valuations in private markets in these six ASEAN member countries. Seventy-two sample data from deals between 2020 and 2022 were analyzed using various quantitative methods, such as panel data testing, T-test, and F-test. The findings indicate that the amount of money collected and the country's risk premium significantly affect startup valuations in these six member countries. However, GDP growth does not have a statistically significant effect. The F-Test shows that the Average Money Raised, the Country's Risk Premium, and GDP Growth all significantly affect startup valuations in the private markets of these six ASEAN member countries when analyzed simultaneously. The T-test reveals that the Average Money Raised is the most significant independent variable. Therefore, investors should continue fundraising, and the government should create a favorable business environment for startups and themselves. These findings could help stakeholders interested in technological investments to evaluate strategic investment in private markets in Indonesia, Malaysia, Singapore, Thailand, Vietnam, and the Philippines. It could also help academics analyze and understand "Factors Influencing Startups Valuation in Private Markets" and assist other researchers in further developing this study.

Cheating in the evaluation. An expedient to estimate the impact of intangibles on the enterprise value of the high-growth start-ups

This study investigates the effect of investments in intangible fixed assets and human capital on the Enterprise Value (EV) of Italian high-growth startups (HGSs). To test our hypotheses, we conducted several Ordinary Least Squares (OLS) regression analyses on a dataset comprising 782 HGSs. The EV was esti-mates using the Discounted Cash Flow (DCF) method. Our findings reveal a posi-tive and statistically significant relationship between investments in intangible as-sets and EV. However, investments in human capital and highly skilled workers show a negatively relationship with EV. Lastly, a positive and statistically signifi-cant relationship between value-added per employees and the EV of HGSs has been identified. This study offers valuable insight into the process through which new firms gener-ate value. By strategically investing in intangible assets and human capital, startups not only enhance their probability of survival but also improve their growth potential. This allows these companies to overcome the challenges of the early stage and embark on a sustainable growth process. To spotlight the unique value drivers of these companies, unlike prior studies, we manually estimate the EV. We have employed the DCF method by playing the cards face up: we used the actual cash flows realized by the HGSs during the study period instead of rely-ing on forecasts. We have therefore "cheated" to measure the value created by the HGSs. This research can be considered a pioneering study that significantly con-tributes to the ongoing debate on the value creation process in fast growing startups.

Examining the post-COVID-19 Shifts in Startup Valuation Strategies: A Case Study of ABC Venture

The "winter tech" phenomenon, marked by employee layoffs and technology usage decline in leading Indonesian digital startups like Go To and Traveloka, is exacerbated by the COVID-19 pandemic, causing a widespread economic downturn, and revealing financial instability. Despite government support, persistent challenges, notably the correlation between layoffs and startup failures, underscore the role of venture capital. The research focuses on understanding venture capital factors, limitations in valuation methods, and addressing the impact of COVID-19 on venture capitalists and changes in startup valuation practices. This research employs semistructured interviews, primarily with WJA, ABC Venture's Vice President of Portfolio Management, to explore the company's investment strategies. The chosen method aligns with the research objective, offering flexibility for comprehensive insights. WJA's extensive experience and leadership position make him a key informant. The study uses a five-stage thematic analysis process to comprehensively analyze themes related to startup success factors based on interview text. The COVID-19 pandemic has impacted ABC Venture's investments, leading to market corrections and a slower investment pace. However, the rise of online service businesses has increased investment, aligning with the global venture capital market's historic high in 2021. ABC Ventures responds with a cautious approach, emphasizing pandemic-related risk assessment in startup evaluation. They actively seek comprehensive plans from startups outlining strategies for navigating the pandemic before considering funding, focusing on online-centric models, and discovering the "next big thing".

Ukrainian Startup Ecosystem as a Driver of Economic and Strategic Resilience

The aim of the article is to comprehensively analyze the key adaptive transformations in the technological ecosystem of Ukraine during the wartime period as a driver of its economic and strategic development, in particular in the period of post-war reconstruction, as well as to generalize the most relevant approaches and features of evaluation of startups. Particular attention is paid to strategic startups in the field of defense, cybersecurity, deep learning algorithms, space and other advanced production technologies, in particular in the context of specific aspects that should be taken into account when assessing their value. The study uses general scientific methods and specific economic and statistical approaches, in particular methods of analysis and synthesis to classify approaches to evaluating startups, as well as descriptive statistics and graphical analysis to identify structural changes in the technological ecosystem of Ukraine. The carried out study showed that in recent years there has been a significant increase in the number and variety of startups specializing in strategic sectors of the economy. Their development is due to both the strategic needs of the State for means to increase defense capability and national security, and global technological trends, in particular in the field of artificial intelligence and cybersecurity. In addition, it is determined that for assessing the value of startups in strategic sectors of the economy, the most flexible and relevant are the method of real options, the method of testing hypotheses, and the approaches based on scenario analysis. The results of the presented study can be taken into account when improving traditional and new methods of evaluating startups and new companies, in particular in terms of taking into account their strategic value using premiums or other valuation techniques. Prospects for future research in this direction are to improve the existing methods for evaluating startups from strategic industries, taking into account the specifics of the sector and the high level of geopolitical and macroeconomic uncertainty.

Should you invest in start-ups now? A practical study of start-ups investment trends using commercial databases

ABSTRACT The funding situation for start-ups is influenced by factors such as policy interest rates and the trends of the stock market. However, the impact is not uniform across all growth stages, and it varies depending on the growth stage. As a result, the funding situation may be different for each funding round. This study aims to examine the funding situation of American start-ups since 2017 using a commercial database, analyze each funding round, and clarify the relationship between changes in external conditions and the funding situation for each round. Many reports suggest that the valuation of start-ups is decreasing due to the impact of financial tightening and the Ukrainian crisis, but detailed articles analyzing the situation for each funding round are not readily available. The media, such as the Nikkei, reported that the overall fundraising situation for start-ups is worsening. However, this study found that the impact on the funding situation for start-ups varies depending on the growth stage, and, particularly in the series B round, the investment amount has hardly changed. Based on these results, it is suggested that venture capital funds and companies should continue to invest in start-ups while considering the characteristics of each funding stage, without shrinking their investments.

Analysis of Henbuk Startup Value Using a Scorecard Assessment Method

This study aims to determine the valuation value of Henbuk's startup by conducting qualitative and quantitative analyses. Henbuk is a startup engaged in e-commerce. The Henbuk startup is currently in the initial funding stage, and the founders are opening opportunities for investors, which can later support operational and development activities. In obtaining funding from investors, the Henbuk startup requires an initial assessment of the company's value. The score assessment consists of several indicators, e.g., quality of the founder and team, opportunity size, product and technology, competition, marketing, sales and partnerships, and the need for additional investment. The results of the value assessment are obtained by using the Scorecard Assessment Method. The results of this study may help to determine the real value of other start-ups for the investors in the future.

Technology-oriented start-ups and valuation: A novel approach based on specific contract terms

New technology-oriented ventures contribute disproportionately to the creation of innovative products, and are the main drivers of the transformation of entrepreneurship, and therefore, to local and national economies. Financial theory has traditionally emphasised the economic importance of access to external resources for fostering a start-up ecosystem; however, little attention has been paid to finding fair value for technology ventures. This is a challenging issue, as their growth is rather non-linear and has a capital structure complex because of various fundraising rounds with different classes of shares, which differ in terms of their rights, and thus, the degree of investor protection. We address this problem by proposing a novel start-up valuation model based on liquidation preferences. The main idea behind this model is that the issue of any preferred equity within a follow-up financing round is used as an opportunity to value common shares, and thus, the value of the wealth of its shareholders. After implementing the model on specific contract terms in a case study, our approach provides decision makers with significantly more accurate results than those achieved by post-money valuation, which is a widespread practice in the venture capital industry. Our model contributes to the redefinition of established valuation models, provides guidance to founders, investors, and managers, and supports better decision-making regarding the allocation of scarce resources in technology-oriented industries.

An Innovative Architecture of DRAM PUF

Cryptographic solutions based on traditional authentication methods are susceptible to several attacks on secret keys. Dynamic random access memory (DRAM)-based physical unclonable functions (PUF) are described as promising security building blocks to enable cryptography and authentication services. PUFs frequently suffer reliability concerns since they are sensitive to both internal and exterior noises. The need for enhanced resistance and dependability results in significant additional overheads. In this work, we proposed a DRAM-PUF based on the inclusion of selective hardware features in the computation. The proposed solution offers a higher number of challenge-response pairs (CRP) without additional circuitry. An innovative structure of PUF is presented in the paper which offers a reliable challenge-response pair module for authentication and authorization based on the ubiquitous nature of memory without the need for an additional circuit. DRAM PUF utilized the random startup value initialized by a capacitor followed by a random number generator. Our proposed PUF shows a reliability of 99.46% with temperature variation, a reliability of 99.5% with supply voltage variation, a uniqueness of 49.46%, a bit aliasing of 46.875%, and a uniformity of 47.65%.

Funding startups using contingent option of value appreciation: theory and formula

PurposeThis paper provides a structural model to value startup companies and determine the optimal level of research and development (R&D) spending by these companies.Design/methodology/approachThis paper describes a new variant of float-the-money options, which can act as a financial instrument for financing R&D expenses for a specific time horizon or development stage, allowing the investor to share in the startup's value appreciation over that duration. Another innovation of this paper is that it develops a structural model for evaluating optimal level of R&D spending over a given time horizon. The paper deploys the Gompertz-Cox model for the R&D project outcomes, which facilitates investigation of how increased level of R&D input can enhance the company's value growth.FindingsThe author first introduces a time-varying drift term into standard Black-Scholes model to account for the varying growth rates of the startup at different stages, and the author interprets venture capital's investment in the startup as a “float-the-money” option. The author then incorporates the probabilities of startup failures at multiple stages into their financial valuation. The author gets a closed-form pricing formula for the contingent option of value appreciation. Finally, the author utilizes Cox proportional hazards model to analyze the optimal level of R&D input that maximizes the return on investment.Research limitations/implicationsThe integrated contingent claims model links the change in the financial valuation of startups with the incremental R&D spending. The Gompertz-Cox contingency model for R&D success rate is used to quantify the optimal level of R&D input. This model assumption may be simplistic, but nevertheless illustrative.Practical implicationsOnce supplemented with actual transaction data, the model can serve as a reference benchmark valuation of new project deals and previously invested projects seeking exit.Social implicationsThe integrated structural model can potentially have much wider applications beyond valuation of startup companies. For instance, in valuing a company's risk management, the level of R&D spending in the model can be replaced by the company's budget for risk management. As another promising application, in evaluating a country's economic growth rate in the face of rising climate risks, the level of R&D spending in this paper can be replaced by a country's investment in addressing climate risks.Originality/valueThis paper is the first to develop an integrated valuation model for startups by combining the real-world R&D project contingencies with risk-neutral valuation of the potential payoffs.

FEATURES OF VALUATION OF STARTUP PROJECTS IN ENTREPRENEURIAL ACTIVITY

Startup valuation, an intricate endeavor due to the unique characteristics of these entities, presents distinct challenges when compared to the valuation of well-established companies. This article examines the complexities inherent in valuing startups, shedding light on the absence of historical data, heightened levels of risk associated with startups and their dynamic environments, the inherent uncertainty in forecasting future development, and the pronounced influence of intangible assets on the overall business valuation. In addressing the valuation of startups, several methods are explored, each with its advantages and limitations. The scenario-based approach, encompassing a range of potential outcomes from successful to failure scenarios, provides a comprehensive assessment of startup value. Additionally, the venture capital method, relying on expected company value at the investor’s exit point, enables valuation without the need for exhaustive cash flow forecasting. These methods take into account the unique dynamics of startup growth and risk. Furthermore, the article stresses the significance of meticulous market analysis, rigorous evaluation of company potential, examination of industry-specific data, and careful consideration of tax incentives. These factors are crucial for a thorough understanding of the startup’s financial health and future trajectory, which directly impacts its value. To achieve a more objective and accurate valuation, it is recommended to employ a combination of valuation methods, considering the startup’s stage of development and specific characteristics. Diverse data sources, including empirical studies and industry benchmarks, can enhance the accuracy of estimates. In conclusion, the article asserts the importance of advancing startup valuation methodologies. Drawing from international experience and conducting in-depth research in specific areas can lead to improved precision, enhanced objectivity, and reduced risks of errors in the valuation process. By refining the valuation techniques, stakeholders can make more informed investment decisions and contribute to the growth of the vibrant startup ecosystem.

Patterns in Preferences? Key Impact Categories in Investors’ Valuation of Startups

Patterns in Preferences? Key Impact Categories in Investors’ Valuation of Startups

Open Innovation Environments Considering Organizational Learning and Self-Organization in Startup Valuation Using Game Theory

Open Innovation Environments Considering Organizational Learning and Self-Organization in Startup Valuation Using Game Theory

Startup Valuation In A Logistics Aggregator (Case Study At Pt Linknau)

The large number of startups in Indonesia is supported by an increase in internet user penetration which reaches 64.8% of the Indonesian population or 171.17 million users (APJII 2019). The potential of Indonesia's creative economy and startups is very large which is supported by abundant natural resources, local cultural diversity spread throughout the archipelago, and diversity of human resources. The objectives of this study are as follow Describe the financial performance of start-ups in logistics aggregators at PT Linknau. Analyzing company size, profitability, economic growth rate, market traction and competitive advantage against start-up valuation in logistics aggregators (Case Study at PT Linknau). The data used in this study are primary data and secondary data. Primary data is in the form of interviews conducted in depth interviews with the CEO of PT Linknau and secondary data in the form of financial statements of start-up Companies PT Linknau from 2019-2022. The results show that the valuation of The First Chicago Method to be the most suitable company valuation method for assessing PT Linknau's company valuation. The main reason why this method is the most suitable method is because currently the company is already in a condition of generating operating income, according to Damiano et. al. (2020).

The financialization of corporate venture capital investment? The corporation as a venture capitalist

Abstract Recent trends in corporate venture capital (CVC) activities have added to the size and complexity of the financial system. Intuition suggests that in a period marked by spectacularly increasing start-up valuations, the opportunity to earn large capital gains increases the importance of corporate investors’ financial motivations. Drawing on interviews with 12 Silicon Valley-based CVC units of global industrial companies, we examine if new trends in CVC investment represent a diversion from incumbents’ traditional focus on improving the competitive advantage of their core businesses. Building on the theory of the financialization of non-financial companies, we investigate the relationship between the strategic and financial motivations of CVC investing. We extend theory by distinguishing between developments at the extensive and intensive margins. We argue that the commonly applied quantitative measures capture financialization only at the extensive margin. Qualitative data indicate that the hypothesis of financialization does not hold at the intensive margin.

The Reputation Factor in the Valuation of Startups

This paper analyses the relationship between corporate reputation and valuation, with a special focus on startups. Considering the most accredited scientific and professional literature regarding startup valuation, an attempt has been made to understand if and to what extent reputation can be a value driver in the estimate of startups during the first phases of their life cycle. The authors conducted a systematic literature review, which showed a modest interest in the subject on the part of the scientific community, while – on the contrary – practitioners developed ad hoc methods for valuing startups in their very early stages also considering reputational drivers. These methods are not based on the forecasting of flows and rates, but instead explain the value of the startup with a series of qualitative parameters that are explicitly identified and individually quantified/valued, acting as indicators of the value of the entity. Among the most used approaches are the Berkus Method, the Scorecard Method, and the Risk Factor Summation Method. These methods include reputational factors among qualitative parameters, that is among the value drivers. The analysis and the conclusions reached offer a conceptual contribution and identify a research path that deserves attention.

A Framework for a Valuation of Digital Start-Ups Using Artificial Intelligence and Fuzzy Sets

Abstract The purpose of this article is to present an innovative framework for assessing digital start-ups and smaller companies using a fuzzy set approach, considering the founder’s expertise, product marketability, financial health, and social media presence. Four Czech digital startups were analyzed by both human experts and an artificial intelligence model. The methodology is based on using a fuzzy additive ratio assessment. Each start-up was evaluated on a five-point scale, with the results compared to Deloitte’s FAST 50 rank. The AI and human evaluations differed, with humans placing more emphasis on the founder’s experience and product appeal. As a practical contribution, the article suggests a valuation framework involving both human and AI expertise for interactive comparison and update. The article highlights the value of AI in start-up assessment, stressing the necessity of merging human and artificial intelligence in decision-making. To date of the publication, no study combining human expertise and artificial intelligence using fuzzy sets was found. Therefore, both methodology and results can be considered innovative and original.

The Effect Of Company Size, Profitability, Economic Growth Rate, Market Traction And Competitive Advantage On Startup Valuation In Logistics Aggregators

The large number of startups in Indonesia is supported by an increase in internet user penetration which reaches 64.8% of the Indonesian population or 171.17 million users (APJII 2019). The potential of Indonesia's creative economy and startups is very large which is supported by abundant natural resources, local cultural diversity spread throughout the archipelago, and diversity of human resources. The objectives of this study are as follow Describe the financial performance of start-ups in logistics aggregators at PT Linknau. Analyzing company size, profitability, economic growth rate, market traction and competitive advantage against start-up valuation in logistics aggregators (Case Study at PT Linknau). The data used in this study are primary data and secondary data. Primary data is in the form of interviews conducted in depth interviews with the CEO of PT Linknau and secondary data in the form of financial statements of start-up companies PT Linknau from 2019-2022. The results show that the valuation of the Real Option Method (ROM) from 2019 to 2023 is seen increasing. It can be seen that the highest value of ROM valuation in 2023 is right in executing investments and finding the optimal value of PT Linknau itself.

Lean UX: Applied PSSUQ to Evaluate Less-ON UI/UX Analysis and Design

Indonesian start-up growth continues to show upward growth. Behind the upward movement of change are success statistics that develop contradictions. According to start-up statistics, about 90% of start-ups fail. Up to 75% of unicorn start-ups believe his excellent UI/UX design can boost start-up valuations and additional investment capital. Less-On is a tutoring provider that acts as an intermediary between teachers and students. This research is done by integrating the process of Lean UX methodology into each process present in each phase of software development. The results obtained from this research are final prototypes that have been validated in terms of criticism and suggestions through questionnaires in the form of lessons on start-up branding. The positive user experience and excellent usability will help further the development of the tutor booking application prototype. This plays an important role in the acceptance, satisfaction and efficiency of using this Less-ON application. The user interface has excellent usability for users tested using the PSSUQ, with an overall average score of 2.136, indicating system usability, information quality, interface quality, and overall Satisfaction-based demonstrates that the system is highly acceptable.