Research On Equity Valuation Of High-tech Start Ups

The competition in the 21st century is competition in knowledge. High technology has become the chief feature for the era of knowledge economy, and the high-tech start ups are becoming the important engine for economic development. High risk, high growth and high yielding of high-tech start ups have drawn great attention of assets valuation. Regarding to simple equity structure, the methodologies of equity valuation and enterprise valuation are almost the same, but to high-tech start ups, it comes more complicated, because the main financing channel of the companies is venture capital, which prefer investing in convertible preference share instead of common equity and debts. When there exists convertible preference share, the way to appraisal the equity value is much different. More than to know the sum of equity value, we should allocate the equity value between different classes of equity.This dissertation aims to evaluate the equity of high-tech start ups. First of all, an exhaustive research has been conducted on traditional methods which can not resolve the difficulties including appraisal of business enterprise value, estimating of discount lack of marketability and equity allocating. Then, option pricing theory and B-S model are introduced as the solution to the difficulties. Based on the analysis of applicability of B-S option pricing method respectively, we established an equity valuation frame of high-tech start ups. Next, the paper applies Dalian Hisoft software company to carry on a case study. With the help of Excel, the valuation model is built efficiently. At last, the paper does a sensitivity analysis, intending to find the effect of variables applied in B-S model on the results of equity allocation which following the method recommended by AICPA. The end results of the analysis are due to make a base to the further study and utilization of the new equity allocation method.