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A Robust Valuation Model for Entrepreneurial Ventures

Author

Listed:
  • Haim Kedar-Levy

    (Ben Gurion University of the Negev, and Ono Academic College)

Abstract

Pro forma estimation of financial statements often builds on constant ratios to sales revenue. While constant ratios may be relevant for established firms operating in predictable industries, they yield noninformative and possibly misleading information when applied to new firms, and particularly to technology ventures. Because new firms grow and change rapidly, a robust analysis should be based on intimate familiarity with the specific firm's business plan. This paper presents an alternative approach that links the firm's budget, as derived from its business plan, to pro forma financial statements, and to valuation models. The resulting estimated firm value is less sensitive to exogenous parameter assumptions than other methodologies.

Suggested Citation

  • Haim Kedar-Levy, 2013. "A Robust Valuation Model for Entrepreneurial Ventures," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 16(2), pages 57-74, Spring.
    • Handle: RePEc:pep:journl:v:16:y:2013:i:2:p:57-74
    as

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    References listed on IDEAS

    as
    1. Harold Fletcher & Thomas Ulrich, 2010. "The Statement Of Cash Flows Using Financial Statement Equations," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 2(1), pages 15-26.
    2. Core, John E. & Guay, Wayne R. & Buskirk, Andrew Van, 2003. "Market valuations in the New Economy: an investigation of what has changed," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 43-67, January.
    3. Trueman, B & Wong, MHF & Zhang, XJ, 2000. "The eyeballs have it: Searching for the value in internet stocks," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 137-162.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Valuation; Business plan; Entrepreneurship; Pro forma financial statements;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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