Emmanuelle Dubocage presented “The financial valuation of venture-backed companies: what theoretical foundations ?” at the Research in Entrepreneurship and Small Business (RENT) in Zagreb, Croatia on November 18-20, 2015.
Abstract: The question of the valuation of venture-backed companies (VBCs) can be posed in the following terms: how to valuate a company whose entire activity is based upon a radical innovation? A company that possesses mainly immaterial assets and has no solid accounting and financial history to back it up? A company that does not generate benefit and evolves in an uncertain environment? What this research seeks to determine is the theoretical background for the valuation of a venture-backed company. Which theoretical frames can shed light upon Venture-capitalists (VC) s’ practices? First we explained why classical valuation methods (discounted cash flows and dividends) on one hand, and the real options approach on the other hand, are inadequate. Consequently we propose to analyse the issue of venture-backed company valuation thanks to Knight’s research on radical uncertainty and also thanks to the research of “Conventionalists”. We consider that, according to his level of competence, a VC can implement either a valuation model that we call “judgement-based” valuation, or the mimetic valuation model only. After presenting both these valuation models, we attempt to conceptualise the evaluation of venture-backed companies at the scale of the venture-capital market, whilst taking into account the heterogeneity among venture-capitalists.