Abstract
Purpose – Startups (SUs) are companies that operate in a scenario of great uncertainty, which makes it difficult to raise funds and survive. This study aims to investigate the main factors that affect the valuation of SUs from the perspective of venture capital investors (VCIs).
Theoretical framework – The valuation of SUs faces unique challenges such as the lack of historical financial data. As a result, entrepreneurs find it difficult to obtain a favorable valuation from VCIs. Mitigating information asymmetry in the valuation of SUs depends mainly on non-financial information.
Design/methodology/approach – More than 50,000 financing rounds – between January 1, 2010 and December 31, 2022 – of SUs located in Brazil, China, India, Indonesia and South Africa are analyzed. The hypotheses arising from the research objective are tested using hedonic regression.
Findings – It is found that the age and stage of development of SUs, as well as the level of investment in research and development and the size of the sector are factors that impact their valuation.
Practical & social implications of research – These results help SUs, VCIs and the market to identify non-financial determinants that can enable a more appropriate assessment of projects. Governments and regulators can consider this information when defining policies to promote investment.
Originality/value – This study innovates by presenting non-financial indicators that are considered by startup investors in emerging markets, thus enabling their effective potential up until the IPO phase.
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