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What drives startup valuations?

Author

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  • Imbierowicz, Björn
  • Rauch, Christian

Abstract

We find that valuations of Venture Capital-backed startup companies invested by mutual funds are driven by their peer valuations rather than their fundamentals, such as operating performances. As startups oftentimes experience substantial valuation changes at their Initial Public Offerings (IPO), we also investigate the share pricing transition of startups from private to public companies. We find that more active pricing of shares prior to the IPO correlates with smaller discrepancies between private and public valuations as well as lower IPO mispricing, suggesting a link between private and public market pricing efficiency. Jointly, our results help investors and regulators achieve a better understanding of the dynamics behind misvaluation in private assets in general, and startups in particular.

Suggested Citation

  • Imbierowicz, Björn & Rauch, Christian, 2024. "What drives startup valuations?," Journal of Banking & Finance, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:jbfina:v:168:y:2024:i:c:s0378426624001651
    DOI: 10.1016/j.jbankfin.2024.107251
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    More about this item

    Keywords

    Mutual funds; Venture capital; Startup; Unicorn; Private asset valuation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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