Startup valuation by venture capitalists: an empirical study

International audienceHow to value a new venture is critical in entrepreneurial financing. This article develops an integrated theoretical framework to examine whether venture capitalists' valuation of a new venture can be explained by factors identified in the strategy theories as important to firm performance. Empirical results from the analyses of 184 rounds of early-stage venture capital investments in 102 new ventures support the central proposition that venture capitalists do take into consideration those factors that are important to firm performance in their valuation of new ventures. More specifically, this article finds that attractiveness of the industry, the quality of the founder and top management team, as well as external relationships of a new venture significantly and positively affect its valuation by venture capitalists when it seeks venture capital financing in its early stages of development. These empirical findings help to establish an initial linkage between the well-developed theories in strategic management and underresearched venture capital valuation practice. It brings more theoretical rigor to the venture capital investment literature by introducing a systematic approach to identify and measure factors important to new venture valuation. It explores a possibility to develop a supplementary method to value an early-stage new venture when extant valuation methods fail to yield consistent results because these methods require accounting information that a new venture typically cannot provide