Valuation of Early Stage High-tech Start-up Companies

Valuating start-ups, especially at early stages, is a challenge given the lack of historical data and many uncertain factors about the future. This article presents a methodology for the valuation of early stage start-ups that we have proven in practice. The risk linked to a start-up is expressed through an individual beta coefficient as important component of the discounting factor within a discounted cash flow (DCF) valuation based on the data in a business plan. Core of this methodology is the development of an evaluation framework for the individual adjustment of the beta coefficient that is applicable to early stage start-ups. This was shown by applying the methodology to 16 early stage start-ups in the fields of biotechnology, nanotechnology, medical technology and clean technology, which provided an easy-to-handle and comprehensible comparison of different investment options for early stage investors. JEL Classifications: G32, M13