Method of Valuation of Business of Start Up Companies: A Case Study

Abstract

Valuation of business is a method to ascertaining the economic value of a business. The method and technique of Business valuation is used to determine the fair value of various assets, both tangible and intangible, as well as liabilities of a business for various reasons which include inviting investors either directly or through capital market, going for mergers and takeovers. Valuation methodology is not similar and identical for valuing all types of Business Concern and it depends on the circumstances, purposes and the objectives behind the   Valuation. In case of a startup company the valuation method chosen should be proper as to reflect the true value of the business because potential investors will take a decision whether to invest or not to invest in the business based on the estimated value of the business.

Determining the real worth of the business and putting a price tag to the business has always been a demanding job for the valuer. In order to ensure that the valuation is near realistic there should be transparency in the valuation process and the factors responsible for valuation should be based on realistic consideration. Although a number of valuation models are used by the valuers for the purpose of valuation the real challenge is regarding the use of an appropriate model, keeping in mind the purpose of valuation. The task is far more challenging in case of start ups especially in absence of revenue and real assets.

 The present study is based on data obtained from a start-up Company where an effort is made to suggest a method to arrive at the fair value of start up companies. For this purpose the enterprise value has been arrived at within the legally acceptable framework.