Explain why traditional methods of valuing business cannot be applied in case of new age startups.

The failure of each of the traditional methods in case of new age startups is tabulated below: Method Reasons Income approach A vast majority of startups operate under the assumption of not generating positive cash flows in the foreseeable future. Off late, this business model has been accepted and normalised by the investor community as well. Since there are no or minimal positive cash flows, it isn't easy to value the business correctly. Asset approach There are two reasons why this approach does not work for new age startups:(i) Startups have negligible assets because a large chunk of their assets are in the form of intellectual property and other intangible assets. Valuing them correctly is a challenge and arriving at a consensus with investors is even more difficult.(ii) Start ups are new, but usually operate under the going concern assumption; hence their value should not be limited to the realisable value of assets today. Market approach New-age startups are disruptors. They generally function in a market without established competitors. Their competition is from other startups working in the same genre. The lack of established competitors indicates that their numbers may be skewed and not be comparable enough to form a base. However, out of the three traditional approaches, we have seen a few elements of the market approach being used for valuing new-age startups, especially during advanced funding rounds.