Predicting Startup Valuation Using Deep Learning: A Data-Driven Analysis

Shubham Rajpal (), Amit Manglani, Shreya Kuchwaha and Sanjay Kumar Verma
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Shubham Rajpal: Guru Ghasidas Vishwavidalaya, Department of Commerce
Amit Manglani: University of Allahabad, Department of Commerce and Business Administration
Shreya Kuchwaha: Guru Ghasidas Vishwavidalaya, Department of Commerce
Sanjay Kumar Verma: Guru Ghasidas Vishwavidalaya, Department of Commerce

A chapter in Proceedings of the 5th International Conference on the Role of Innovation, Entrepreneurship and Management for Sustainable Development (ICRIEMSD 2024), 2024, pp 333-348 from Springer

Abstract: Abstract Assessing the value of startups has distinct issues owing to their early development, limited operating experience, and elevated risk profile. Conventional valuation techniques, such the Berkus Method, First Chicago Method, Venture Capital Method, and Scorecard Method, provide diverse strategies for evaluating startup value but often encounter constraints owing to limited financial data and the dynamic characteristics of the market. This article examines the complexities of startup valuation, including the financing phases from seed capital to venture capital and private equity, and their influence on value. It underscores the challenge of using traditional financial measures for companies that may not possess significant sales or profitability. The emergence of deep learning models presents a viable alternative to conventional valuation techniques. Advanced methods, such Artificial Neural Networks (ANN) and Convolutional Neural Networks (CNN), enable these models to analyse extensive data sets for more precise predictions of startup success. Deep learning methodologies may mitigate the data constraints of traditional approaches by revealing concealed patterns and insights from a wider array of non-financial metrics. This research analyses the impact of deep learning on startup valuation, highlighting how these models may improve predictive accuracy and provide a more thorough evaluation of a business’s potential. It also examines the interaction between quantitative data and qualitative elements, such as management quality and product-market alignment, in determining startup value. Although deep learning models signify a considerable progression in startup valuation, they serve to enhance rather than supplant existing methodologies. The amalgamation of novel analytical methods with traditional valuation models may provide a more refined comprehension of a startup’s value, so assisting investors in making more enlightened choices in a swiftly changing entrepreneurial environment.

Keywords: Startup Valuation; Deep Learning; Artificial Neural Network (ANN); Entrepreneurial Finance; Predictive Analytics (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-612-3_22

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