Spawning Butterflies –Value Flow across Startup Lifecycle Stages

Startup firms are dynamic entities that undergo fundamental transformations over their lifecycle. Such transformations are the result of value flow to newer firm-related factors. However, startup valuation factors are often used fluidly in multi-stage empirical studies resulting in confounding results. The objective of this study is to disentangle determinants of startup valuation across the early and late stages of a startup’s lifecycle. By doing so, the study identifies valuation factors that increase, decrease, or maintain relevance across lifecycle stages. We conducted a literature survey of entrepreneurship studies that analyzed startup valuation and its determinants and carefully classified these into early-stage and late-stage factors. By seeking stage-level interpretations, we introduce the “relevance hierarchy” for valuation factors across lifecycle stages. We uncovered persistent and volatile factors, i.e., some factors persistently affect firm valuation while others exhibit volatility in its effects. For practitioners, we derive a meta-model of startup valuation that is unique to the two lifecycle stages – early and late. The main contribution of this study is in conducting the literature review on startup valuation through the “looking glass” of the lifecycle stage and this vantage point will allow practitioners to develop focused models of valuation that avoid confounding effects.