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SCIENCE COMMUNITY: WEB OF CONFERENCES
October-December, 2021
17
ECONOMIC SCIENCES
VALUATION OF START-UP ENTERPRISES
Ishmuradov Davlatbek
MBA student at the Graduate School
of Business and Entrepreneurship
The XX century was a truly revolutionary period of development of such entrepreneurial activity
as a startup. In modern business science, there are many definitions of a startup. For example, the
most coherent definition is given by the Business-All information resource, where a startup is such a
company, an Internet project that has an ambitious, innovative idea and a promising product.
However, the professional community of entrepreneurs prefers to use a more detailed definition of a
start-up. Experienced entrepreneurs and experts in the field of start-up business-Steve Blank and Bob
Dorf in their book “ The Startup Owner’s Manual” give the following definition,” A startup is a
temporary
structure that is engaged in the search for a scalable, reproducible, cost-effective business model.”
PROBLEMS OF EVALUATION OF START-UP ENTERPRISES
Entrepreneurs and investors should equally understand the critical aspect of valuation in venture
capital transactions of start-ups and young companies that are yet unprovided with income. By
equalizing expectations, this understanding provides both sides with positivity and productive
cooperation between investors and founders. Moreover, investors and entrepreneurs benefit separately
when they know the answers to important questions, such as: what should the most important factors
investors be considering when determining the value of a company? How can entrepreneurs better
present their companies to persuade early stage investors and develop effective relationships with
them?
APPROACHES TO EVALUATING START-UP COMPANIES
In his methodological work, Luis Villalobos, founder of Tech Coast Angels, points out that
valuation represent a fundamental factor for an investor in generating income. The investor’s income
obtains an increase in the value of the shares received in return for the capital invested by him. As the
author notes, valuation is the most misunderstood part of the investment process, which leads to
disputes during negotiations and initially sets an unfortunate tone in the relationship between an
investor and an entrepreneur. Obtaining objective information about the value of a startup enterprise
serves as a quite guide for entrepreneurs in their work to attract investment. Therefore, in the
presentation of a startup, you can reflect those points that will be most interesting to investors, and
this can also help to understand what you need to pay attention to in order to increase the value of the
startup enterprise and increase the desire of investors to invest in it. According to the author of the
article “ How to evaluate a startup? Expert advice “ by Arthur Welf the process of negotiating the
valuation of startups sometimes becomes rather poker game, the essence of which is to hide the cards
and create the impression that the cards of the players, in this case, the investor and the entrepreneur,
are better than they absolutely. This approach calls into question the effectiveness of the relationship
between the entrepreneur and the investor. Since, after the conclusion of t he transaction, both parties
will have to work together on the successful development of the startup enterprise. It should also be
understood that the process of evaluating the value of start-up enterprises is more formal, since the
use of traditional methods of evaluating companies becomes impossible due to the lack of profit in
the early stages of a startup.
In assessing the value of start-up enterprises, there are many “pitfalls” that is reflected in the
problems of this procedure. Recent companies and start-ups are difficult to evaluate for a number of
reasons. Some of them remain thought-provoking businesses, with little or no revenue and operating
costs. Even those profitable companies have a short history, and most young start -up companies
depend on personal capital, the initial savings of the founders and venture capital, and personal shares
in the company. As a result, many of the standard techniques used to estimate cash flow, growth rate,
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