Quantitative valuation of platform technology based entrepreneurial ventures Online publication date: Tue, 06-Apr-2010
by Ann-Kristin Achleitner, Eva Lutz, Stephanie Schraml
International Journal of Entrepreneurial Venturing (IJEV), Vol. 1, No. 4, 2010
Abstract: In the course of raising external equity, e.g., from venture capitalists, a quantitative valuation is usually required for entrepreneurial ventures. This paper examines the challenges of quantitatively valuing platform technology based entrepreneurial ventures. The distinct characteristics of such companies pose specific requirements on the applicability of quantitative valuation methods. The entrepreneur can choose from a wide range of potential commercialisation strategies to pursue in the course of company development which is difficult to take account of in a quantitative valuation. By developing and applying a systematic map of valuation requirements in this context, we analyse whether the cost, market, discounted cash flow (DCF) or real option approach is suitable for platform technology based entrepreneurial ventures. We argue that all three valuation methods have drawbacks. Yet, the DCF approach is considered to be more suitable for the entrepreneur as well as external equity providers than other quantitative valuation methods.
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