First Chicago Method: Alternative Approach to Valuing Innovative Start-Ups in the Context of Venture Capital Financing Rounds (First-Chicago-Methode - Alternativer Ansatz zur Bewertung von innovativen Unternehmensgründungen bei Venture-Capital-Finanzierungen)
Technische Universität München - Center for Entrepreneurial and Financial Studies
Heinrich-Heine-Universität Düsseldorf, Endowed Chair in Entrepreneurship/Entrepreneurial Finance
Betriebswirtschaftliche Forschung und Praxis (BFuP), Vol. 57, No. 4, pp. 333-347, 2005
For venture capital investors, the valuation of innovative start-ups is usually challenging as classic valuation approaches can not be applied. Therefore, context specific valuation approaches are often used to simplify the valuation process. The First Chicago Method is one of these context specific valuation approaches which takes account of payouts to the investor during the holding period and which models three scenarios: best case, base case and worst case scenario. In comparison to the Venture Capital Method as alternative context specific valuation approach, the First Chicago Method has conceptional advantages but is also characterized by a more complex valuation process.
Keywords: First Chicago Method, Venture Capital Method, new venture valuation, innovative start-ups, venture capital,
JEL Classification: M13, G32
Date posted: May 14, 2008