Startups` Valuation by Venture Capitalists

<p>Most countries of the world consider the development and implementation of innovative technologies as a necessary thing for the economic growth. So, to make the country a leader in innovation and, as a result, to make the country a competitive one, it is necessary to develop and commercialize new products and technologies or, in other words, to develop the startup business sphere.</p><p>Venture capital funds are main source of financing for a startup business which is characterized by absence of a history, uncertainty about future and a promising idea. How to valuate a company accurately is a meaningful question especially for a venture investor because it reflects the return the investor may receive.</p><p>The review of some of the classical approaches to valuating of business shows that the existing methods of valuation are not able to provide consistent results for an early-stage businesses. They require accounting information that a new venture typically cannot provide. That is the main problem.</p><p>The research is aimed at obtaining the most realistic value of startup project.</p><p>The research subject &ndash; the sphere ofventure business.The object of the research- methods for valuation of startup companies.</p><p>To achieve the goals it was solved the following tasks:</p><p>- to define the startup;</p><p>- to highlight the features of startup business;</p><p>-toevaluate a role that the venture capital play for a startup business` development;</p><p>- to consider existing methods for business` valuation;</p><p>- to evaluate their applicability to the startups;</p><p>- toobtain the value of a real startup project&laquo;Drum&raquo;.</p><p>For our research four quantitative methods for a valuation were chosen: Discounted cash flow method, method of Multiplier, &laquo;Venture Capital&raquo; method and &laquo;First Chicago&raquo; method.The choice is made basing on the ability of methods to take into account the peculiarities of an early-stage business. As a result, four different values of the startup &laquo;Drum&raquo; were obtained. The resulting value was obtained using the weighting of values received by the different methods.It is 360`302`075rub. Than this value was adjusted using the Scorecard method, taking into account the qualitative characteristics of the project such as management`s strength, market opportunities, product`s development etc. So, the final value is 231`193`831rub.</p><p>According to the valuation of startup project &laquo;Drum&raquo; it is concluded that the venture investor should finance this project. And the investor&#39;s share is 9%.</p>