Exploring the Determinants of Startup Valuation and Appropriate Valuation Techniques: A Theoretical Approach

Abstract

This study aims to integrate current literature on the determinants of startup valuation with appropriate valuation methodologies shown to provide the most accurate picture of a startups true valuation. Given the lack of historical financial information on startups and high uncertainty surrounding them, research covering the determinants, their valuation, and relation with methodologies are scarce. A single literature review paper was found covering the determinants of startup valuation from a holistic view covering wide geographies. The 3 main determinants of startup valuation like various aspects of startups, venture capitalists, and the external environment, which coincide with the viewpoint of a fundamental analysis in valuing companies. From there it was found that the First Chicago method, discounted cash flow, and comparable method were appropriate measures used in valuation that provide considerable anchorage, or justification to startup valuations. It was also found that the factors of each of the determinants of startup valuation coincide with valuation methodologies and can be linked to influencing them respectively through the use of current mainstream financial theories.