Flexible Planning in an Incomplete Market

In many cases, the financial situation of start-up companies only allows equity financing of growth investments. Every increase in capital needs a post-money valuation of the firm. Therefore, it is important to have appropriate methods to evaluate these companies. Firm valuation methods include flexible planning techniques and real option approaches. These methods are based on the present value method and/or the binomial model. They assume that the firm’s cash flows can be duplicated by financial contracts and, therefore, imply a complete market, at least for this market segment.