IT startup valuation in the purpose of venture financing

<p>The work &ldquo;IT startup valuation in the purpose of venture financing&rdquo; contains 16 tables, 13 pictures, 1 appendix. The volume of work is 83 pages. In the purpose of writing this work 48 foreign and Russian scientific sources were used. Key words: startup, valuation methods, investor share, venture investor, algorithm.</p><p>The topicality of this problem is caused by the need to develop innovative companies in our country. In order to reduce the economy&#39;s dependence on exports of natural resources such as oil, gas and minerals, Russian government has focused more and more on increasing of the level of entrepreneurship and high-tech industries. The study Dow Jones VentureSource on the outcomes of venture financing in 2012 confirm that in Russia there was a venture investment boom, which allowed the country to rise to 4th place in Europe in terms of investments in high-tech industries. However, due to the lack of a unified methodology for valuing startups their expertise can last too long, which negatively affects the company in the early stages of development. In order to increase the speed and quality of expertise it is necessary to improve methods for assessing startups.</p><p>The aim of this work is improving valuation methods startup in the information technology sector.</p><p>The object of study is Russian startups operated in the field of information technology. Subject of research are methods by which venture capitalists valuate IT startups.</p><p>The first chapter contains information about theoretical framework for the valuation of IT startups by venture investors, investment mechanism is described, fundamental definitions and terms are given. Also the features of Russian venture capital market in terms of Russian experts are presented.</p><p>In the second chapter the requirements for venture capital investors to projects are described. Particular attention in this chapter is given to the classical methods of assessing startups. In particular, we consider the discounted cash flows method, method of venture capital, the first Chicago method, multipliers, and the options method. Modern techniques are also presented.</p><p>In the third chapter different valuation methods for IT startups &laquo;eZWay&raquo; were applied. It were considered different aspects of the project such as team, market, customers, and different types of risks were evaluated. The valuation algorithm valuation IT startup was created, taking into account the specifics of the IT sector and venture capital investment. Recommendations for improving methods and evaluation system were given.</p><p>The theoretical basis of work is monographic publications, articles and books by foreign and Russian authors. It should be noted that the development of valuation methods and their study are reflected primarily in the works of foreign authors. The book by A. Damodaran influenced on direction of the work most of all. The author has long been recognized as a classic business valuation. In addition, a large role in this work plays another professional of valuation A. Metric. Also in the study some modern methods of evaluation by Russian authors such as A. Dubrovin, V. Koshkin, Lukashov were given.</p><p>IT startup &laquo;eZWay&raquo; was valuated by two methods: method of venture capital and risk assessment model. Estimates (4.9 million rubles and 17.5 million rubles) vary widely. During the valuation we faced a few problems: a subjective assessment of the successful exit probability and the lack of sources of information on transactions between startups and venture capital investors . Based on this assumptions, recommendations were made and the algorithm of the valuation of IT-startup by venture investor was created. The algorithm contains the following steps:</p><p>1) project Analysis (SWOT-analysis, metrics of the product, Berkus method);</p><p>2) peers selecting;</p><p>3) determination of post-investment value of the company;</p><p>4) determination of the term of investment, share and the amount of investment;</p><p>5) determination of the value of a patent;</p><p>6) identification of the risk premium;</p><p>7) determining the cost of research and development;</p><p>8) adjustment of post-investment value.</p>