(Value New Ventures)
The valuation of startup company is arguably the most fascinating but also the most daunting valuation task. The purpose of this module is to understand the specific challenges we face when valuing startup firms and to see how we can adjust the standard valuation techniques to at least obtain a rough assessment of the potential financial value of a new venture. Then we look at real options, discuss how we can value such options, and how to implement option pricing models for real investment decisions.
The module "Startup Valuation" proceeds in 6 steps:
The introductory chapter sets the stage with a brief overview of the main challenges we face when valuing startup firms.
Second, we discuss how to adjust the standard valuation methods (DCF and multiples) to the typical situation of startups.
Third, we show how Venture Capitalists (VC) typically value firms.
Fourth, we show how to get from the valuation to the issue price of a financing round and how to incorporate dilution from potential future rounds of financing.
Fifth, we look at option pricing models and discuss to what extent startup firms can be considered real options.
Finally, we discuss some key aspects concerning the identification and valuation of real options in the entrepreneurial setting.
For each topic, there is a short reading assignment, followed by some review questions and practice examples.