Startup Valuation with Monte Carlo Simulation Approach

Venture capital is now considered among the major parts of the world's entrepreneurship ecosystem. One of the main steps of venture capital is to value and discover the price of a startup business. This study reviewed the real data of some startups in different areas to develop an operational model of startups. Then, it defined the distribution functions of non-deterministic parameters of the model and performed a Monte Carlo simulation to investigate different scenarios for a startup value using the discounted cash flow (DCF). The value obtained (after ۱۰,۰۰۰ times of simulation) followed a lognormal and right-skewed distribution. Therefore, this approach can increase the accuracy of valuation and reduce the effects of personal judgment (intuition) on the valuation process. It can increase our knowledge of different value states and possible value distribution functions.Considering the distribution dispersion and the factors affecting it, dynamic valuation can be performed to add to the flexibility of investment and also reduce the risk of capital venture

Keywords:

Venture Capital , Valuation , Discounted cash flow (DCF) , Monte Carlo simulation , Startup