Determinants of valuation of fintech start-ups: evidence from Singapore

Abstract

The aim of this study is to determine the key factors influencing the pre-money valuation of fintech start-ups in Singapore during their pre-revenue stage. Fintech is a portmanteau of "financial technology" (Trificana, 2023). Fintech comprises a wide range of technologies, applications and business models, transforming the financial services sector, creating new opportunities for consumers and enterprises, and challenging traditional financial institutions to adapt and innovate (Walden, 2022). Given the strategic importance of fintech start-ups to revolutionise financial services and their potential contribution to economic growth, understanding the pre-money valuation process of a fintech start-up becomes imperative, especially during the pre-revenue stage (Hidayat et al., 2022).

Pre-money valuation refers to the estimated value of a start-up before new capital is received from investors (Speiser et al., 2024). This valuation is essential for start-ups and investors because it determines the equity ownership that investors will receive in exchange for their investment (Jain, 2023). In addition, start-ups during the pre-revenue stage, unlike established companies with well-documented financial histories, do not have the conventional financial metrics available for valuation purposes (Damodaran, 2012). Consequently, alternative approaches and factors should be considered in determining the valuation of these early-stage companies (Jreisat et al., 2021).

The theories that underpin the valuation framework of this study are the resource-based view of strategic management theory (Miloud et al., 2012) and the comparable firm valuation approach of general theory on firm valuation (Damodaran, 2012). Two research questions are raised in this thesis. The first is: What are the determinants of pre-money valuation of a fintech start-up in Singapore, during the pre-revenue stage? The second is: What is the ranking of factors that influence the pre-money valuation of a fintech start-up in Singapore?

To determine pre-money valuation factors of fintech start-ups in Singapore during the pre-revenue stage, the present study used a mixed method approach combining quantitative analysis of secondary data (55 companies) with qualitative insight from interviews with industry experts (55 CEOs). The quantitative component includes reviewing data from a sample of Singapore-based fintech start-ups, focusing on variables such as the founders’ previous fintech experience, founders’ previous top management experience, founders’ previous start-up experience, and the total number of members in the founding team, as well as the most recent pre-money valuation of a comparable fintech start-up of a similar business type. The qualitative component seeks to deepen and verify the understanding of the valuation process from the perspective of experts.

The findings reveal that the pre-money valuation of a fintech start-up in Singapore during its pre-revenue stage is significantly influenced by factors such as the previous fintech experience of its founders and the most recent pre-money valuation of a comparable fintech start-up of a similar business type. These factors serve as critical signals to investors about the quality and growth prospects of the start-up. Among the identified factors, the qualitative interview findings show that 44% of the interviewees rated the most recent pre-money valuation of a comparable fintech start-up of a similar business type as the most important factor in the valuation of a fintech start-up firm.

The present study contributes to the academic literature, particularly the fintech literature, by including the comparable firm valuation as an important approach to the fintech start-up valuation process during the pre-revenue stage. The present study also advances the resource-based view and comparable firm valuation theories by empirically demonstrating their applicability in the context of the pre-money valuation of a fintech start-up in Singapore during the pre-revenue stage. In addition, the present study enriches the theoretical discussion by identifying specific signals that are relevant to the pre-money valuation of a fintech start-up in Singapore during the pre-revenue stage. By shedding light on the key factors influencing the pre-money valuation of a fintech start-up in Singapore during its pre-revenue stage and their rankings in terms of importance, the present study provides valuable insight to founders, investors, and policy makers in Singapore start-up communities.

Date of Award	2025
Original language	English
Supervisor	Milind SATHYE (Supervisor) & Habib KHAN (Supervisor)