Business Valuation of Start-Up Companies. Is Discounted Cash Flow the Best Method to Value a Start-up Company? (PDF)

Seminar paper from the year 2019 in the subject Business economics - Company formation, Business Plans, grade: 1,7, Provadis School of International Management and Technology AG, course: Finance Management, language: English, abstract: The purpose of this term paper is to study the different methods and criteria of the Business valuation of companies and comparing them and check their applicability to Start-Ups. The difference between the valuation of normal and new companies should be also illustrated. This will be approached with the help of specialist literature, journals and magazines. The practical part will be illustrated by the practical process of choosing the best possible business valuation method of an early fintech Start-Up in Germany.

It is important when someone wants to buy something that he knows its value and that he is sure that he has not paid more than its real value. It is relatively easy to know the value of the things we buy in a daily basis by comparing the price to other things or when comparing the current price to the price in the past.

However, the situation is quite different when we buy a company with all its departments and knowledge. Here we will have to use some specialized methods to be able to know the value closest to reality and to avoid significant material losses when an evaluation error occurs.

Business Valuation is one of the most difficult challenges in business. The reason is that we live nowadays in an extremely changing world. That makes it difficult to measure the valuation of a company and expect their development for the next years. It is also much more difficult and trickier to value a Start-Up company due to the lack of important information about new companies such as corporate governance mechanisms. Therefore, the valuation process of Start-Up Companies looks a little bit different from the valuation of normal companies.