Proceedings of the 5th International Conference on New Ideas in Management, Economics and Accounting
Year: 2018
DOI: https://www.doi.org/10.33422/5imea.2018.02.52
New Venture Valuation and Venture Capital Perspective: An Industry Level Analysis
Satya Narayan Panda , Arun Kumar Gopalaswamy
ABSTRACT:
Valuation of new venture is a key pointer for decision making for both, the entrepreneur as well as the funding venture capitalists (VC). The value depends on certain assumptions which could significantly vary from either perspective as VCs aim at enhancing stake by parting with little money and vice versa for the entrepreneur. Although there exists traditional valuation methods in corporate finance literature none are free from drawbacks when applied for startup valuations due to varied interpretations of missing accounting information, non-existence of comparable companies, problems in estimating risk and discount factors.The objective of this research is to reduce this complexity by integrating industry structure variables in the valuation methods. As per well-established industry organization literature the industry structure variables affects firm performance. This implies that if a new venture is part of an industry characterized by high growth, high product differentiation and low concentration then the venture is expected to have adequate opportunities for superior future performance which is reflected in valuation of the firm. The empirical analysis of this research aims to identify the industry structure effects for a startup which could aid in assessing the performance and hence a robust valuation.
Keywords: Valuation, Venture Capital, Entrepreneurial Finance.