Risk-Based New Venture Valuation Technique: Win-Win for Entrepreneur and Investor

: New ventures that lack a financial history and have a future that is not only unknown, but may be unknowable pose unique problems to the investment community. Since conventional valuation techniques do not work in these cases, entrepreneurs and investors resort to techniques that rely more on art...

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Bibliographic Details
Published inJournal of business valuation and economic loss analysis Vol. 8; no. 1; pp. 1 - 26
Main Author Vara, Whittington P.
Format Journal Article
LanguageEnglish
Published Berkeley De Gruyter 2013
Walter de Gruyter GmbH
Subjects
Adverse selection
Angel investors
Asymmetry
Discount rates
Discounted cash flow
Entrepreneurs
Equity financing
investment
Investment policy
Moral hazard
Present value
real options
start-ups
Valuation
Venture capital
venture finance
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Summary:: New ventures that lack a financial history and have a future that is not only unknown, but may be unknowable pose unique problems to the investment community. Since conventional valuation techniques do not work in these cases, entrepreneurs and investors resort to techniques that rely more on art than finance. Although a reduction in information asymmetry usually leads to an agreement between two parties, the methods the entrepreneur or investor use to value a new venture tend to increase this information gap. The author proposes a logical, systematic risk-based new venture valuation technique that reduces information asymmetry during this process.
ISSN:2194-5861
1932-9156
DOI:10.1515/jbvela-2013-0007