Start-up valuations a complex business

Grant Thornton issues guidance to valuators

There's much encouragement for start-up enterprises in the Isle of Man - this year's IsleExpo and the re-styled Department for Enterprise have made fostering entrepreneurship a priority. 

But getting the valuation of a start-up enterprise right can be problematic. According to accounting and audit company Grant Thornton it is a complex combination of science and art.

The firm's analysed the motivations and expectations of start-ups and investors, and issued guidance on how to achieve a balance.

Isle of Man director Martin Kneale says the traditional valuation model based on predicted future cash flow discounted by the inherent risk facing the business, is a starting point only.

Mr Kneale says key variables - from the entrepreneur's ability to implement an idea to successful use of new technology - make valuations 'very challenging'.

He says start-up valuators must understand the company's key assets are likely to be intangibles.

Grant Thornton's advice is discursive rather than a bullet-point check list.

It suggests an 'artistic' approach should be applied, where investor as buyer, and entrepreneur as seller, evaluate the business using both qualitative information and subjective judgement.