Explain why applying the three most common globally accepted business valuation methods is challenging when valuing a startup. Or Explain some…

Either One common feature in the three most common globally accepted methods of valuing a business is that it pre-supposes a business that is established and generates cash flows using its assets. On the contrary it is difficult to call Start-ups “established” in any sense or assume that their cash flows (if not already spent on marketing) will not be constant. Profitability seems to be a cursed word in the startup investor circles. Like the valuation of startups is often required for bringing in investments either by equity or debt. However, the most significant differentiating factor in the valuation of a startup is that there is no historical data available based on which future projections can be drawn. The value rests entirely on its future growth potential, which, in many cases, is based on an untested idea and may not have been based on an adequate sampling of consumer behaviour or anticipated consumer behaviour. The estimates of future growth are also often based upon assessments of the competence, drive, and self-belief of, at times, very highly qualified and intelligent managers and their capacity to convert a promising idea into commercial success. The major roadblock with startup valuation is the absence of past performance indicators. There is no 'past' track record, only a future whose narrative is controlled based on the founders' skill. It can be equated as founders walking in the dark and making the investors believe that they are wearing night vision goggles. While this is exciting and fun for the founders, this is risky for the investors. OR Following are some similarities between Tokenization and Securitization: (i) Liquidity: - First and foremost both Securitization and Tokenization inject liquidity in the market for the assets which are otherwise illiquid assets. (ii) Diversification: - Both help investors to diversify their portfolio thus managing risk and optimizing returns. (iii) Trading: - Both are tradable hence helps to generate wealth. (iv) New Opportunities: - Both provide opportunities for financial institutions and related agencies to earn income through collection of fees.