What's It Mean?
Pre-Requisites for Valuation of a start-up technology company include:
- the financial forecast must be rigorous and achievable;
- an "exit date" needs to be established - this should be the expected date when something might happen e.g. a sale to a venture capitalist, an Initial Public Offer (IPO) or a sale to a major corporation (strategic buyer); and
- a realistic Price Earning (P/E) Ratio must be selected and used. This would be after adjusting for limited equity of the start-up technology company and the lack of earnings history. A risk multiplier would also be factored into the valuation calculation. This would be based on the stage of development of the start-up company.