Research On The Application Of Market Multiplier Method In The Valuation Of Start-ups

Startups are one of the many types of companies that are difficult to value using traditional methods.There are many money-losing startups on the market,but they have sky-high valuations.Traditional valuation methods are difficult to explain this phenomenon.Therefore,this thesis tries to make an in-depth study on the valuation of start-ups.According to The Valuation Guidelines for Private Equity Investment(Trial)2018 of AMAC(Asset Management Association of China),there are five common valuation methods for private equity:referring to the recent financing price method,market multiplier method,industry index method,discounted cash flow method and the net asset method.This thesis focuses on the application of market multiplier method to the valuation of start-ups.This thesis makes an overall analysis of valuation methods of startups and their practices.First of all,it introduces the definition of startups,summarizes its characteristics,and analyzes the difficulty in startups' valuation.Then this thesis introduces applying the market multiplier method into the valuation of startups.The author has the conclusion that general valuation methods in The Valuation Guidelines for Private Equity Investment(Trial)2018 have their limitations when valuing startups,and then the author analyzes the theoretical foundation and advantages of market multiplier method when valuing startups,and the author introduces the practical application of market multiplier method,finally points out the potential disadvantages of this method when valuing startups and feasible solutions.This thesis analyzes the start-ups and their valuation first.The author introduced the definition and classification of the start-ups,summarized the characteristics of the start-ups,analyzed the difficulties in the valuation of the start-ups,also put forward some problems to be paid attention to in the valuation process and their feasible solutions.Then,the author explores the application of market multiplier method in the valuation of start-ups.The author makes it clear the limitation of the reference to the latest financing price method,discounted cash flow method and the net asset method,which shows that the market multiplier method is more applicable than other methods in the valuation of start-ups.Then the author introduces the definition of the market multiplier and its basic forms,analyzes the application of this method in the reality.The author finds out that the market multiplier method is applied to the valuation of the mature enterprise more,but the research on the valuation of the start-ups is much less,so this thesis is very necessary.This thesis also sums up the advantages of the market multiplier method in the valuation of start-ups,which are simplicity,flexibility,objectivity and accuracy.Then the author puts forward that when using the market multiplier method to value a start-up,people should pay attention to the choice of the comparable company,the selection of comparison index and the revise of valuation results.Next is the case study part.It carries out with the example of the online traveling company Tour.Using the market multiplier method,the author chooses another online traveling company Tongcheng as the comparable company,and chooses the number of web browsing volume as the comparison index.Then the author revises the valuation result,and verifies it using the real data on the market.So a complete process of valuation with the market multiplier method is demonstrated fully.The conclusion is drawn from the practical level that the market multiplier method has a good application in the valuation of the start-ups.Lastly,on the basis of all the above conclusions,the author raises opinions on and puts forward suggestions for the choice of valuation methods,and the application of market multiplier method for start-ups.