Does external capital and expansion in access to funding influence market premiums of technology startup firms? Considering the lack of empirical evaluation, we analyzed the causal impact of Startup Valuations vs Real Economic Impact using Crunchbase data on 7,481 technology startups.
In the United Arab Emirates (UAE) between 2000 and August 2022, at a pre-money or early-stage. To have fair and credible information on the effect of funding on market valuation of technology-based startups, we used Ordinary Least Squares (OLS) and other causal inference tools including Shapley values analysis, average treatment effect (ATE), and conditional average treatment effect (CATE). The results indicate a U-relation between the capital increase and post-money valuation in the sense that, the overall effects of capital funding on the market valuation are positive but the increased amount.
What is Startup Valuation and Why Matters for Founders
In addition, we had facts that private equity, Series B, and C raise substantial market value of the early-stage tech firms. The findings contribute to the existing body of knowledge since it indicates that capital funding and financing have a beneficial effect on the market valuation.
Due to the sustenance and growth of the start-up economy, the economy requires large capital since the world is witnessing the growth of start-up economy. In the recent past, new financial instruments have surfaced which offer appealing funding prospects in this blistering rate of technological revolution and globalization of the world. The issue of startup valuation is gaining more attention in academic research in entrepreneurial finance and start-up ecosystem. According to the available literature in current research (Dushnitsky and Lenox, 2006, Guo and Jiang, 2013, Davis, 2021, Eldridge, 2021, Kim, 2022).
The Real Factors That Influence Your Startup’s Valuation
Some research has indicated how renowned the effects of the type of investments on market valuation can be (Engel, 2002; Davila, 2003; Bertoni, 2011; Hochberg, 2016; Eldridge, 2021; Davis, 2021); There is hardly any research published on the role that funding can play in driving market valuation to startups. Particularly, the issue of determinants and factors associated with the success of technology start-up.
The work could not trace any evidence except that of Abdeldayem and Aldulaimi, (2021). The research question as designed basing on the research gap analysis performed in the course of literature review is as follows Is there any impact of outside financing and increased access to capital on the market valuation of technology startup firms With the existing absence of the empirical-based evaluation regarding the discussed issue, it is important to investigate.
Market Size & Growth Potential
The effect that outside financing and capital investments of technology startups have. In pursuit of the answer to this question, the authors are trying to answer the following questions to provide a causal impact diagnosis to compare the market value of technology startups with and without external funding to analyze the obtained data to reach the conclusion concerning the effect of various forms of investments and the size of investments on the market value.
Regarding the methodology applied to the paper, we analyse the effect of capital funding.
On market valuation by the indicators of funding and post-money valuation of high-tech early-stage companies established in the United Arab Emirates since 2000-2022 presented on the Crunchbase database. Crunchbase is an application that supplies details about investments and fundings as well as mergers and acquisitions and other trends about an industry. The samples of startup companies in the UAE amount to 7481 over the years 20012022. The variables in the dataset are variables on the regions, total rounds of investment, types of the investment and the total amount.
Conclusion
Of investment per round in seven regions in the UAE. Although OLS is a valid statistical test that may be used in estimating the effect of each element on the outcome, the model fails to explain the interaction of the elements. The Shapley values instead allow gaining a more detailed insight into the contribution of every feature to outcome, considering interactions among variables. Moreover, Average Treatment Effect (ATE) (Imbens and Rubin, 2015).
The analysis of the Conditional Average Treatment Effect (Athey and Imbens, 2017) is also performed to get further information regarding the optimal quantity of capital required to enter a positive position on the market. In the recent past, there has been an increase in the number of investments and fintech startups in the middle east. As reported by Wamda (2022), the month-on-month increase in funding startups.
