June 2026
Valuing a start-up business is more difficult than it is for businesses that have a financial history. Entrepreneurs often over-value their businesses as they tend to focus on what they hope their business will be and less what it is upon the valuation date. The value of an entrepreneur’s business is important as a valuation is necessary to price equity buy-ins. Value the business too low and money is left on the table. Value the business too high and there may be a failure to attract investors.
The most common methods to value a start-up are Discounted Cash Flow (“DCF”), Market Approach and the Venture Capital Method.
The DCF Method involves projecting cash flows into the future and discounting those cash flows to present value at an appropriate discount rate. The problem with this method is that projections tend to be “pie in the sky” with little support. The discount rate used should reflect the risk of not achieving the projected cash flows.
The Market Approach involves finding comparable start-up businesses that have recently been funded, gone public or were acquired. Market multiples of revenues, earnings or cash flows that were paid for the comparable businesses are applied to the subject business. The problem with this method is that many start-up businesses don’t have a history of revenues, earnings or cash flows.
A method that is also considered to be under the Market Approach is using equity buy-ins as a base for valuing the business. The problem with using equity buy-ins to value a business is that many businesses use the subject valuation to price equity buy-ins. Thus, as of the valuation date, there are no equity buy-ins upon which to rely.
The Venture Capital Method involves estimating the exit value and then discounting that value to present value at a discount rate that equals the investors’ required return on investment.
In summary, there are a few methodologies that can be used to value a start-up. However, each method has its drawbacks. Businesses that have viable patents, trademarks and/or copyrights have higher values as revenues have some protection. Likewise, businesses with high potential growth rates tend to have higher values, as do ones that can support financial projections.
Relevant Court Cases
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Duffield v. Legend Spine, LLC et. al.,
The Superior Court of Pennsylvania,
No. 3023 EDA 2024,
filed March 11, 2026
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Sant v. Sant,
The Arizona Court of Appeals Divison One,
No. 1 CA-CVC 24-0889 FC,
filed September 25, 2025
Recent Business Valuation Articles
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“The entrepreneur as a mediating agent
and the valuation of entrepreneurial firms,”
by Alberto Dell’Acqua,
dated June 17, 2026
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“The Impact of Risk Management Activities on
Bank Valuation,”
by Jin Ca, Michael S. Pagano and John Sedunov,
dated June 16, 2026
Recent Engagements
- Valuation of the common stock
of a construction and service
company providing HVAC solutions
on a controlling interest basis,
for Employee Stock Ownership Plan
purposes.
- Consulting regarding a building
materials distributor on a
minority interest basis for
planning purposes.
- Valuation of member interests
in a specialty contracting firm
on a minority interest basis
for purchase/sale purposes.
- Valuation of the common stock
of a niche medical care
provider on a minority interest
basis for gift tax reporting
purposes.
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