Start-up valuation: an overview of valuation approaches and the effect of a new capital infusion on an enterprise value of a start-up

Oceňování start-upů: přehled přístupů a vliv nové investice na hodnotu start-upu

Michal Novák

Oceňování, 2021, vol. 14, issue 3, 70-85

Abstract: This article describes approaches and methods related to venture capital valuation namely, start-up valuation. New venture value concepts have emerged within venture transactions. The pre-money valuation shows the value of the start-up before new capital infusion, while the post-money valuation shows the value of the start-up including a new capital infusion. Approaches of venture capital valuation (VCV) are, in principle, coincident with approaches of public equity valuation. Four approaches of VCV can predict the start-up value in two directions of future expected earnings, the first direction - post-money value including a new capital infusion and the second direction - pre-money value excluding capital investment/infusion. In the extreme scenario where a start-up without capital infusion ceases to exist because there are no venture capital providers, the expected profit will be zero, which means zero pre-money valuation. Ultimately, it is very difficult to determine whether the start-up value is before or after the new capital infusion and, thus, the start-up valuation becomes a matter of negotiation process between the founder and the venture investor as it depends on a new capital infusion, to what extent, it affects the enterprise value of a start-up or it has an impact on its future exit.

Keywords: Start-up; venture capital; VC; venture capital valuation; VCV; valuation approaches; capital infusion; pre-money valuation; post-money valuation; rizikový kapitál; oceňování rizikového kapitálu; oceňovací přístupy; příliv kapitálu; pre-money hodnota; post-money hodnota (search for similar items in EconPapers)
JEL-codes: G24 G30 M13 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.18267/j.ocenovani.266

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