Valuating the Value and Risk of International Start-up Ventures

Abstract

Fair value depends on an estimate of the both cash flow and risk, which is not an easy task when valuing startup firms. We present a measurement instrument for the future risk of small and risky firms that follows the major propositions in accounting and finance. It differs from other valuation instruments in looking simultaneously at the assets and liabilities. We test the VBB as a measure for value over time by using a database of VC backed innovative companies that oridary DCF valuation fails to capture their value. We show that the VBB is an effective way to capture the dynamics of the value of high risk firms.