Startup Company Valuation: The State of Art and Future Trends

Abstract

The aim of this conceptual article is to present a systematic literature review about the most used and innovative startup valuation methods to define the state of art and future trends on this important topic.
 
 Because of the particular features of early-stage companies, it is not easy to find an adequate method to assess their value. Traditional valuation methods are unsuitable for startups. Therefore, over time, academic literature and experienced investors created alternative and innovative valuation models. We analysed the main models, outlining the advantages and limits for each one.
 
 The results of our analysis show that there is currently no "perfect" method to assess a startup’s value. Each model discussed has significant limits, and the possibilities for improvement are many. We are witnessing a gradual withdrawal from more arbitrary valuation models, and consciousness is growing towards the idea that to better assess startup’s value, it is necessary to consider three aspects: attention to future forecasts instead of past data, using probability to consider different scenarios, and understanding of and attention to the specific business model of the startup rather than data on comparable companies in the market. Currently, none of the discussed methods integrates these three features harmoniously.
 
 We expect that in the near future, the academic literature will develop new valuation methods (or will perfect existing ones) that should consider the three characteristics mentioned previously. In this way, it would be possible to create a more suitable method to assess a startup's value, i.e., a method to reduce uncertainty and that better represents the startup’s value and makes startup company valuation more reliable.

Fundraising activities and digitalization: defining risk indicators for evaluating equity crowdfunding campaigns

“…Therefore, the risk indicators presented here could be further important pieces of information that entrepreneurs could disclose during the campaigns to motivate and spark the interest of more investors to participate and contribute to the campaign, in an attempt to inform and provide investors with an alternative channel to evaluate the underlying firm. As outlined by previous studies, investors’ decisions are sequential and incremental, made in an uncertain environment (Montani et al , 2020). Therefore, adding new information that investors could use for making decisions can reduce uncertainty and information asymmetry.…”

Estudio Empírico de los Factores Relevantes en la Metodología de Valuación de Startups

“…Cada factor se valúa en una escala del -2 al 2, siendo 2 la mejor calificación con el monto más alto. Montani, et. al.…”

Venture Business Project Valuation with the Risk Sensitive Value Measure and Both Sensitive Value Measure

“…Although such methods are useful in the initial screening of projects, this paper focuses only on venture projects that are close to profit level, which are typically evaluated using quantitative methods. Thus, we will refer to Montani et al [10] for a detailed discussion on qualitative methods.…”

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