Valuation Model of New Start-Up Companies: Lithuanian Case

Abstract

Abstract.A large number of economic, financial, social, technological, ecological, environmental and other indicators define the effectiveness of the investment process. According to some of the indicators, the alternative new venture companies are suitable for putting them into investment, according to others, they are not. It becomes difficult to choose the optimal investment in the new venture, as all of them have very poor accounting data or still do not have any. Therefore, there is a lack of valuation methods, which could evaluate start-ups without having any accounting data. The purpose of this article is to propose an evaluation model which could help to choose the optimal new venture to fund. Multi-criteria methods, used in the evaluation process, enable to get objective answers about the effectiveness of the optimal new venture comprehensively by presenting some generalized indicators and considering both quantitative and qualitative data. The start-ups evaluating method proposed by the authors has both theoretical and practical advantages: the extensive analysis can be carried out; the different classification of the evaluation criteria is possible; the weights of the criteria are evaluated (importance, significance), and the possibility to include the new evaluation criteria and their employment in practice are considered. The obtained empirical results comparing two Lithuanian start-ups show that the proposed method could be used for evaluating complex processes of the optimal new venture investments, and could be adapted for various situations. Santrauka. Įvairūs ekonominiai, finansiniai, socialiniai, technologiniai, ekologiniai, aplinkos ir kiti veiksniai apibrėžia investicinio proceso veiksmingumą. Remiantis vienais rodikliais investicija į naujai kuriamą įmonę gali būti efektyvi, remiantis kitais -ne. Sudėtinga pasirinkti optimalią investiciją į naują įmonę, nes dažnai tokios įmonės turi mažai apskaitos duomenų arba jų visai neturi. Teorijoje ir praktikoje stokojama vertinimo metodų, kurie leistų įvertinti rizikingo kapitalo investicijas turint mažai finansinės informacijos. Šio straipsnio tikslas -pasiūlyti naujai kuriamų rizikingo kapitalo įmonių vertinimo modelį, kuris leistų investuotojui pasirinkti naujai kuriamą įmonę finansavimui. Daigiakriterinių metodų įtraukimas į vertinimo procesą leidžia objektyviai įvertinti naujai kuriamą įmonę, išsamiai išanalizuoti plataus spektro rodiklius -ir kiekybinius, ir kokybinius. Autorių siūlomas naujai kuriamų rizikingo kapitalo įmonių vertinimo modelis leidžia atlikti visapusišką ikiinvesticinę analizę, įtraukti skirtingas vertinimo kriterijų klasifikacijas; įvertinti kriterijų svorius, svarbą ir reikšmę; suteikia galimybę įtraukti naujus vertinimo kriterijus vertinimo proceso metu. Gauti empiriniai rezultatai, lyginant dvi Lietuvoje steigiamas įmones, rodo, kad siūlomas metodas gali būti taikomas kompleksiškai vertinant sudėtingą rizikos kapitalo investicinį procesą ir gali būti pritaikytas įvairiose situacijose. KeywordsReikšminiai žodžiai: nauja įmo...

Valuing start-ups – selected approaches and their modification based on external factors

“…Based on a systematic literature review The weakness of these approaches is that they do not take into account research studies on the influence of the business environment that should be also reflected while valuating start-ups. The valuation approaches of Festel et al (2013), Stankevičienė andŽinytė (2011) andMiloud et al (2012) do not reflect the differences between countries concerning their attractiveness for venture capital investments. Valuation results based on these approaches may then tend to overvalue investments in countries with a less favourable business environment, and disregard the attractiveness of those with a more favourable environment.…”

“…The starting point for our modifications are approaches that modify the β coefficient in the calculation of the cost of equity (Festel et al 2013), the score of individual start-up project characteristics (Stankevičienė and Žinytė 2011), and that use regression to estimate the importance of start-up project characteristics (Miloud et al 2012). The key modifications of the models consist in the inclusion of the factor of business suitability when valuing a start-up project.…”

“…We also reflect the modification applied by Stankevičienė and Žinytė (2011), who propose evaluating business angel projects in Lithuania on the basis of 22 criteria in six areas ( Table 2). The weightings of individual criteria are determined by an expert estimate.…”

“…A similar approach has been proposed by Stankevičienė and Žinytė (2011). These authors consider the conventional valuation methods, such as discounted cash flows, multipliers or asset analysis, to be inadequate.…”

“…Individual criteria weightings are determined by expert estimates. The model by Stankevičienė and Žinytė (2011) formulated by the formula (7) is modified as follows:…”