Oceňování 2021, 14(3):70-85 | DOI: 10.18267/j.ocenovani.266

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

Michal Novák

Ing. Michal Novák, doktorand; Katedra financí a oceňování podniku, VŠE Praha

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

Grants and funding:

Článek je zpracován jako jeden z výstupů výzkumného projektu Fakulty financí a účetnictví VŠE Praha, který je realizován v rámci institucionální podpory VŠE IP100040.

JEL classification: G24, G30, M13

Published: November 4, 2021  Show citation