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For this discussion, I have chosen the valuation of early-stage technology companies model, for this seems to be a very common business we see sprouting today and throughout the entire country. The method itself as described by Hitchner, to “analyze share-based compensation, financial statement disclosure, obtaining capital, estate planning and litigation.” (2017, p. 1044) As this model only pertains to early-stage companies, there is still a very broad span of issues and challenges that appraisers and valuators face during this process. One of the topics looked at is the share-based compensation, which is looked at under the share value, is strictly looking at the shares available outstanding, versus those already apart of the shares that are diluted, such as the treasury method states. (Barenbaum & Schubert, 2019) As the methods of determine the value can change, a valuation of a company can always be impacted by law suits. Usually, the suits are directed towards the appraiser and the judge decides would be adequate or efficient for the continuance and the outcome of the appraisal. “Share based compensation represented seven percent of revenue in 2013 and the firm had a policy of repurchasing shares to meet the expected cost of option exercises. Mr. Steffen did not include share-based compensation as a reduction in future free cash flow.” (Barenbaum & Schubert, 2019, p. 147) Even though the share based compensation was a part of several company’s statements, it did not impact their cash flows. This data of this study was conducted using Ancestry.com, 3M Cogent, and BMC Software Inc.
Another conversational topic of the method, is how to obtain additional capital for their company. One example of this would be known as equity crowd funding; by using an open call of funding on various platforms over the internet, the company sells typically to a small group of investors, portions of their stock or their equity. (Efrat et al., 2019) Doing this over a large scale of small groups of investors, you will then produce a larger pool of selection for future funding. Having more small groups over lesser large groups, has shown to have more opportunity for growth and funds flowing into the company. Being this is a early-stage technology company at the core, the larger the funding is exactly what they will need. It would be difficult for the smaller company to get the same source of funds from big supplier and investors, because they company does not have the general backing, financial support and progressive history, as some may require. This is also because the risk that is present, is too great of one than they are willing to reap a reward from.
In all, valuations into an early-stage technology company can be very interesting in the sense that there are so many variations and different methods that can be used over the other alternatives.
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