The Relevance of Financial versus Non-Financial Information for the Valuation of Venture Capital-Backed Firms

46 Pages Posted: 15 Aug 2009 Last revised: 7 Nov 2014

See all articles by Soenke Sievers

Soenke Sievers

Paderborn University

Christopher Frederik Mokwa

University of Cologne

Georg Keienburg

University of Cologne

Date Written: October 2, 2012

Abstract

This study examines the relevance of financial and non-financial information for the valuation of venture-capital investments. Based on a hand-collected dataset on venture-backed start-ups in Germany, we investigate the internal due diligence documents of over 200 investment rounds. We document that balance sheet and income statement items capture as much economic content as verifiable non-financial information (e.g., team experience or the number of patents) while controlling for several deal characteristics (e.g., industry, investment round, or yearly venture capital fund inflows). In addition, we show that valuations based on accounting and non-accounting information yield a level of valuation accuracy that is comparable to that of publicly traded firms. Further analyses show that the industry-specific total asset multiples outperform the popular revenue multiples but lead to significantly less accurate results than those obtained from the more comprehensive valuation models. Overall, our findings might inform researchers and standard setters of the usefulness of accounting information for investment companies and provide additional evidence to gauge the overall valuation accuracy in venture capital settings.

Keywords: value relevance, equity valuation, venture capital, human capital, start-ups

JEL Classification: G24, G32, M41

Suggested Citation

Sievers, Soenke and Mokwa, Christopher Frederik and Keienburg, Georg, The Relevance of Financial versus Non-Financial Information for the Valuation of Venture Capital-Backed Firms (October 2, 2012). European Accounting Review Forthcoming. Available at SSRN: https://ssrn.com/abstract=1449740 or http://dx.doi.org/10.2139/ssrn.1449740

Soenke Sievers (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

Christopher Frederik Mokwa

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Georg Keienburg

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany
0049-221-470-4432 (Phone)

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