A New Insight into the Valuation of Start‑ups: Bridging the Intellectual Capital Gap in Venture Capital Appraisals

Abstract

The emergence of a New Economy has brought consensus to the idea that innovation skills and capabilities are the main drivers of a firm's wealth generation capacity. The principal role that venture capital played in boosting American economic productivity and growth during the 1990s, fuelling innovation and the creation of new firms is well known. However, the huge number of bankruptcies among high‑tech companies in 2000 generated general distrust in financial markets worldwide. In particular, it caused great reluctance to invest in start‑up companies and led investors and academics to question and take an in‑depth look at existing valuation procedures. Building upon the concept of competitiveness of Man et al. (2002) and the premise that a firm's success is the result of appropriate strategy formulation and implementation (Grant, 2002), the present paper develops the start‑up general valuation model (SGVM) as a first step to improving the investment appraisal of start‑up companies and promoting a more effective allocation of resources in the economy.