Because of the particular features of early-stage companies, it is not easy to find an adequate method to assess their value. The traditional valuation methods are unsuitable for startups. Therefore, over time, academic literature and experienced investors created alternative and innovative valuation models.
The results of our analysis show that there is currently no ‘perfect’ method to assess a startup’s value. Each model discussed has significant limits, and the possibilities for improvement are many. We are witnessing a gradual withdrawal from more arbitrary valuation models, and consciousness is growing towards the idea that to better assess a startup’s value, it is necessary to consider three aspects: attention to future forecasts instead of past data; using probability to consider different scenarios; and understanding of, and attention to, the specific business model of the startup, rather than data on comparable companies in the market. Currently, none of the discussed methods integrates these three features harmoniously.
We expect that in the near future, the academic literature will develop new valuation methods – or, alternately, will perfect existing ones – that should consider the three characteristics mentioned previously.
From ‘Startup Company Valuation: The State of Art and Future Trends’, Canadian Centre of Science and Education.