| Pub. Date | : Apr, 2022 |
|---|---|
| Product Name | : The IUP Journal of Applied Economics |
| Product Type | : Article |
| Product Code | : IJAE10422 |
| Author Name | : Sheeba Kapil* and Gaurav Barick** |
| Availability | : YES |
| Subject/Domain | : Economics |
| Download Format | : PDF Format |
| No. of Pages | : 19 |
The pre-money valuation of startups, as their performance indicator, is critical in entrepreneurial financing, which in turn is significantly shaped by the firm's internal resources. This paper analyzes an integrated theoretical framework to examine whether the valuation of startups can be explained by strategic and firm-level factors identified by Barney's (1991) Resource-Based Theory (RBT) as critical to firm performance. Empirical results from the analyses of 142 German startups support the theory that investors consider important factors to startups' performance in their valuation. Implications of the study involve further research on the impact of social and financial capital within human and physical resources and establishes different determinants important to raise different types of funds-venture capital, angel, seed, and grant-in tech and non-tech startups.
With their limited revenue but high costs, startups extensively seek external funding for business growth and scaling simultaneously, though they are more prone to valuation-related difficulties than an established business. Moreover, considering their limited histories, dependency on private equities and susceptibility towards failure-21.5% in the first year, 50% in the fifth year, and 70% in the 10th year (see the report of National Business Capital and Services (2019))-their valuation remains a challenge for investors. Nonetheless, the past decade has witnessed a considerable increase in ventures with market value crossing $1 bn through advanced innovation, novel technologies and business models. These ventures, also popularly termed unicorns1, are particularly based outside the United States (US)-in