Infoscience

Thesis

Assessment and valuation of high growth companies

Valuation is a key topic in the financing and development of high growth companies. The goal of this study is to bridge the existing gap between the assessment of a company and the financial valuation. Many models exist to capture soft factors, and many more studies have been conducted to understand financial valuation models. In this study, the first step is to develop an assessment framework to capture the value drivers for high growth companies. Based on literature research, an empirical study with 52 valuations, and an iterative process this assessment framework has been built. It contains the following three main factors: Management Market environment Product, Sciences & Technology Each of these main criteria contain a number of sub-criteria shown in Figure 1. For each criterion, a rating between 1 and 6 is given with a specific scale that can be implemented in practice for high growth companies. Even though every company is different, the provided framework allows a systematic and transparent assessment of a high growth company. The proposed valuation methods are specifically targeted for high growth companies and include operational based methods such as discounted cash flow and option pricing, as well as relative methods such as the market comparable and comparable deal methods. Some others, such as the venture capital method, are also a combination of an operational and relative approach. The methodical assessment framework enables a link to be made with the financial valuation models to obtain a consistent and comprehensive assessment and valuation approach for high growth companies. The link is made by splitting up the discount rate into different premiums and by introducing a calculation schema. The assessment framework and its criteria have been tested in an empirical study to find correlations between the success of a company and the provided rating/framework. With the available sample of 25 valuations, this correlation could be shown for the market environment and the product, science & technology. For the management factor, it was not possible to show a statistical significance, even though practical experience had shown that management is a key factor. A main reason why no statistical significance was shown could be that the management team can be changed very quickly. Assessment and valuation of high growth companies 2 Thus, the assessment and valuation is a done at a specific moment in time but did not capture the development of the management team. However, in conclusion, the assessment and valuation is still an art. The proposed framework provides a roadmap to becoming an artist in this field and should serve as a practical guideline.

    Thèse École polytechnique fédérale de Lausanne EPFL, n° 3425 (2006)
    Section de management de la technologie et entrepreneuriat
    Collège du management de la technologie
    Institut de logistique, économie et management de technologie
    Chaire de logistique, économie et management
    Jury: Dominique Foray, Massimo Lattmann, Benoît Leleux, Jan-Anders Månson

    Public defense: 2006-1-25

    Reference

    Record created on 2005-11-28, modified on 2016-08-08

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