Valuing an Entrepreneurial Enterprise

Valuing an Entrepreneurial Enterprise

Valuing an Entrepreneurial Enterprise

Valuing an Entrepreneurial Enterprise

Synopsis

Entrepreneurs generally lack the marketing capabilities necessary to bring their new product to market. To engage the resources required to do this, they must somehow place a value on the enterprise. However, all of the methods of valuation currently available are based on the use of historical or current revenues, and therefore are not applicable to an entrepreneurial enterprise with a first-time product. In Valuing an Entrepreneurial Enterprise, Audretsch and Link present a valuation method uniquely tailored to emerging technology-based ventures that have no revenue history to lean on. Unlike many traditional methods, theirs does not take into account the track record of companies and products similar to that being valuated. Instead, it draws on economic theory to formulate a solution to the problem.

The book develops conceptual ground, including trends in entrepreneurship, models of innovation, and the economics of standards and entrepreneurship policy. The authors review the traditional valuation methods and illustrate them numerically with case studies to show how the traditional approach produces an incorrect valuation. The core of the book presents the new methodology and demonstrates how it avoids the pitfalls of past approaches. The authors also show how public policy on technology and infrastructure changes valuations of start-up firms in areas such as stem-cell products and renewable fuels projects.

Valuing an Entrepreneurial Enterprisewill serve as a valuable resource for advanced students, economists, financial planners, and valuators interested in new valuation methods and the theory behind them, as well as those interested in entrepreneurship.

Excerpt

What makes an individual an entrepreneur, and what makes his or her commercial endeavors an entrepreneurial enterprise? These two questions, especially the former, have occupied the minds of many scholars and practitioners for centuries; the answers to each are as varied as those who have given thought to the questions. Envisioning an entrepreneur even occupied the canvas of Maestro SalvadorDali, arguably an entrepreneur in his own right. However, we suspect that few self-proclaimed entrepreneurs would envision themselves as Dali envisioned β€œThe Entrepreneur.”

We do not attempt to offer a precise construct or definition of either an entrepreneur or an entrepreneurial enterprise in this book. That is not our purpose in undertaking this project. In fact, others have already trodden that ground. Rather, we offer in this introductory chapter selected, yet relevant, characteristics of an entrepreneur and an entrepreneurial enterprise. The primary emphasis of our effort is on valuation, that is, on how one thinks about or determines the fair market value of an entrepreneurial enterprise. Our emphasis is on closely held entrepreneurial enterprises as opposed to any that are publicly owned.

There are two reasons that we focus on valuation issues and methods that are related to a closely held entrepreneurial enterprise. The first reason is that the number of small, closely held . . .

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