Start-ups valuation, which approach to adopt? Abstract

Start-ups valuation, which approach to adopt?

Abstract:

The article addresses the limitations of traditional valuation methods when applied to emerging companies (startups) due to the uncertainty associated with these types of businesses. Despite previous attempts with alternative methods, a consensus framework for start-up valuation has not been established. The article reviews the advantages and limitations of alternative methods and subsequently proposes a methodological approach based on the longterm survival probability of start-ups. This methodology suggests adjusting the calculated value using traditional methods, such as Discounted Cash Flow
(DCF), by applying a probability of success determined by the start-up’s potential to
secure funding, adjusted for specific risks of the company. The focus is on the “probability
of success” to achieve a valuation tailored to the unique characteristics of each start-up,
with the aim of facilitating investment decisionmaking.

Keywords: start-up, valuation, probability, risk