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By: Fernando Cárdenas E.

The valuation of ventures and companies in environments of high uncertainty is a complex process. The principles used in traditional corporate finance that are used to value mature companies are based on the assumption that markets are efficient. These assumptions may be true for mature companies, but they certainly do not hold for start-ups and early-stage companies. In recent research, Hidayat and several co-authors investigate the drivers of value in startups that have been invested in by angel investors and venture capital funds. Are there significant differences in the valuations according to the subsector and the transversal technologies used? What effects do the financial and non-financial characteristics of companies have?

Here is a summary of the research answers to these questions:

The core assumptions of corporate finance that capital markets are efficient and perfect are: That there are no transaction costs, that access to information is costless, and that investors have homogeneous expectations and are rational. Many of these assumptions are not met in the case of start-ups or SMEs. In these companies there is a great asymmetry of information between investors and businessmen and the costs of obtaining the information and carrying out the transactions are significant. This makes the valuations of these companies very important and challenging and the bargaining power of the parties plays a fundamental role in the final determination of the transaction prices.

The purpose of the research by Hidayat and his co-authors is to understand what factors determine these valuations with particular emphasis on the sectoral and technological aspects of companies. The researchers use a sample of 4,903 companies in which professional venture capitalists have invested in the period 2008 to 2018.


Subsectors or industry: 

The authors analyze companies in 182 subsectors of the economy of which 23 have positive effects on valuations. The sectors where companies have better valuations are: automotive, beverages, risk analysis, machinery, pharmaceutical and drug discovery, diagnostic equipment, infrastructure and energy production, chemical industry, insurance brokerage, places and entertainment goods, insurance of health and life, monitoring equipment, 

Transversal technologies: 

Of the 42 different cross-cutting technologies used by companies, the ones with the greatest impact on valuations are: mobile technologies, clean technologies, augmented reality and big data. In other words, those independent companies in the subsector that use these technologies in their business models tend to have better valuations. 

Geographic location: 

The study shows important differences between the 16 world regions analyzed. Startups located in the United States tend to have better valuations than those in other regions, with the exception of those located in the East Asia region.  

Company features:

The characteristics of the companies associated with a better valuation regardless of the sector, the technologies used or the geographical location are: The level of sales, the age of the company, the number of employees and the degree of influence that the company has in the networks. social. Valuations tend to increase with company sales, but this effect seems to decrease after a certain level of sales. Valuations initially appear to decline with age and then begin to rise. This may indicate that companies become more attractive to investors as their teams learn about the business and risks are reduced over time. The number of employees also has a positive relationship with valuations. As teams and talent grow, companies tend to be worth more. The researchers also find a significant effect of the influence that companies have on social networks. This is because a social media presence has become the primary way that companies market their products and themselves to investors.  


The growing development of the venture capital industry and the large participation of companies in the private capital markets, together with the difficulties in identifying the value of companies in imperfect markets and in environments of high uncertainty, make it important to understand the determinants of value in ventures. For investors and entrepreneurs it is valuable to know which industries, which technologies and which characteristics of the companies may be more attractive and better valued in these markets. It is not enough to define the sectors in which companies are invested in or created. Regardless of these sectors, including transversal technologies such as augmented reality, mobile technologies, clean technologies and big data in business models increases the value of companies. The same as showing traction in sales, growing in employees, maturing as a company, as well as increasing the presence in social networks.    

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