Title: Quantitative valuation of platform technology based entrepreneurial ventures

Authors: Ann-Kristin Achleitner, Eva Lutz, Stephanie Schraml

Addresses: Technische Universitat Munchen, TUM Business School, KfW Endowed Chair in Entrepreneurial Finance; Center for Entrepreneurial and Financial Studies (CEFS), Arcisstrasse 21, D-80333 Munich, Germany. ' Technische Universitat Munchen, TUM Business School, KfW Endowed Chair in Entrepreneurial Finance; Center for Entrepreneurial and Financial Studies (CEFS), Arcisstrasse 21, D-80333 Munich, Germany. ' Technische Universitat Munchen, TUM Business School, KfW Endowed Chair in Entrepreneurial Finance; Center for Entrepreneurial and Financial Studies (CEFS), Arcisstrasse 21, D-80333 Munich, Germany

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.

Keywords: entrepreneurial ventures; platform technology; young venture valuation; quantitative company valuation; intangible assets; intellectual property; commercialisation strategies; value extraction; discounted cash flow; DCF; real options; external equity; entrepreneurship.

DOI: 10.1504/IJEV.2010.032537

International Journal of Entrepreneurial Venturing, 2010 Vol.1 No.4, pp.352 - 366

Published online: 06 Apr 2010 *

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