215 American Journal of Economic and Management Business e-ISSN: 2835-5199 Vol. 2 No. 6 June 2023 START-UP VALUATION IN A LOGISTICS AGGREGATOR (CASE STUDY AT PT LINKNAU) Shafira Elvina Putella¹, Zuliani Dalimunthe², Teddy Oswari3 1,2Universitas Indonesia, Jakarta, Indonesia 3Universitas Gunadarma, Jakarta, Indonesia Email: shafira.elvina5@gmail.com Abstract Many start-ups in Indonesia are supported by an increase in internet user penetration, reaching 64.8% of the Indonesian population or 171.17 million users (APJII 2019). The potential of Indonesia's creative economy and start-ups is very large, supported by abundant natural resources, local cultural diversity spread throughout the archipelago, and diversity of human resources. The objectives of this study are as follows Describe the financial performance of start-ups in logistics aggregators at PT Linknau. Analyzing company size, profitability, economic growth rate, market traction, and competitive advantage against start- up valuation in logistics aggregators (Case Study at PT Linknau). The data used in this study are primary data and secondary data. Primary data is in the form of interviews conducted in- depth interviews with the CEO of PT Linknau, and secondary data is in the form of financial statements of start-up Companies PT Linknau from 2019-2022. The results show that The First Chicago Method's valuation is the most suitable for assessing PT Linknau's company valuation. The main reason this method is the most suitable method is that currently, the company is already generating operating income, according to Damiano et al. (2020). Keywords: start-up; innovative start-up valuation methods; start-up's value; aggregator logistics; This article is licensed under a Creative Commons Attribution-ShareAlike 4.0 International. INTRODUCTION Today's technological developments are increasingly sophisticated, and Indonesia has become a thriving start-up ecosystem; based on the start-up ranking database (2020), Indonesia has 2,217 start-ups. Many start-ups in Indonesia are supported by an increase in internet user penetration, reaching 64.8% of the Indonesian population or 171.17 million users (Bowdish et al., 2020; Handayani et al., 2021) . From these data, the number of internet users is increasing over time, and it has become common among Internet users to use the Internet as a forum for online transactions. According to Moore, (2014) the change in economic patterns is known as the economic wave, and the creative economy is the fourth wave in economic orientation after the agricultural economy, industrial economy, and information economy. Based on the results of creative economy potential mapping conducted by the Indonesian Creative Economy Agency in 2016, 16 creative economy subsectors consisting of (1) architecture; (2) interior https://creativecommons.org/licenses/by-sa/4.0/ https://creativecommons.org/licenses/by-sa/4.0/ https://creativecommons.org/licenses/by-sa/4.0/ American Journal of Economic and Management Business Vol. 2 No. 6 Jun 2023 216 design; (3) visual communication design; (4) product design; (5) films, animations, and videos; (6) photography; (7) crafts; (8) culinary; (9) music; (10) fashion; (11) app and game developers; (12) publishing; (13) advertising; (14) television and radio; (15) performing arts; and (16) fine arts. The potential of Indonesia's creative economy and start-ups is very large, supported by abundant natural resources, local cultural diversity spread throughout the archipelago, and diversity of human resources (Irjayanti, 2020). With the addition of the value of creativity and innovation to the creative economy, it will have the opportunity to become a driver of national development and economic growth (Simatupang et al., 2012). At first, start-ups receive government and external agency support to help kick-start the business stages, for example, producing prototypes, writing business plans, leasing facilities, and other activities involved in creating the organization. External agencies' support guarantees that some companies will have long-term success. The reality is quite the opposite; once a business has been established and can operate independently, this level of support is hard to find. The challenge is particularly formidable for business owners at this stage of the early cycle due to the need for more funding from the public and private sectors. This relates specifically to theories such as the Business Life Cycle Model developed by Churchill and Lewis (1982) or Greiner's Growth Model (Handcock et al., 2008). Figure 1: The Valley of Death Start-up Osawa and Miyazaki (2006) An interesting start-up that is the focus of this research is Linknau for Business. Linknau was established in 2019 as one of the start-ups that runs a business as a logistics aggregator, which uses applications via devices or smartphones for integrated delivery of goods through an application to support business growth. Linknau logistics partners include JNE, Anter Aja, Ninja Express, 21 Express, SAP Express Courier and Si Cepat. Linknau, in running its business, has all the conveniences for business people, such as being able to integrate with company systems using Application Programming Interfaces (APIs), having their store couriers with multiple logistics support, providing access between business people and partners through a separate interface system and providing more choices of delivery partners if using Linknau. Shafira Elvina Putella 217 Figure 2. Sales Data, Investment Expenditure Activities, and Investor Income for the 2019-2022 Period Furthermore, the growth rate is the process of increasing the production of goods and services in the economic state of the community; an economy is said to experience growth if the economic level achieved in a certain year is higher than the previous year. So that the rate of increase in GDP can cause changes in the ratio of state income because GDP is the numerator of the calculation of the Tax Ratio. DP is one of the benchmarks that can be used to determine a country's income. Gross domestic product is the number of products in the form of goods and services produced by production units within the territorial boundaries of a country (domestic) for one year (Kummu et al., 2018). Economic growth is very influential on company valuations, supported by research conducted by (Purnamasari et al., 2022) states that company growth and economic growth greatly affect start-up valuations. Likewise, research conducted by Oktaviani & Apriani, (2020) states that company growth, along with economic growth, greatly affects start-up valuations. Market traction is a development momentum for start-ups to increase sales and customer base. In other words, traction is the company's ability to monetize the value of its users, where the output can be in the form of users, partners, merchants, and so on, as long as it can be monetized. Generally, a company's success in the traction period is judged by the number of new customers and the total revenue they receive. However, many large companies such as Amazon, Google, Uber, and start-ups such as Gojek have good traction, although their revenue can only sometimes be determined. Traction is an abstract yet possessive concept. Here are some important functions of traction for start-ups, Key Investor Considerations as the main consideration for investors to disburse funds. Investors will choose companies that are stable, potential, and able to grow exponentially. Indirectly, the traction success rate of a start-up is an indicator that is quite influential for investors who are interested in disbursing funds. Next, the Customer Interest Indicator is the customer's interest in the product or service offered (Solihin, 2020). The traction value will be a validation and material for evaluating the success of a start-up's product or service. Then, the ever- increasing traction value can convince excellent candidates to join your start-up. Thus, you can improve the quality of human resources within the company. Finally, considering traction is an effort to increase business profits, revenue, and customer base. No wonder start-up traction is also called a "whip" for companies to continue to take innovative steps so that their start-up grows. Market traction affects company valuation; this is supported by research conducted by Nielsen & Dane-Nielsen, (2019) stating that market traction affects American Journal of Economic and Management Business Vol. 2 No. 6 Jun 2023 218 start-up valuation. Meanwhile, research conducted by Visconti, (2020) states that market traction affects start-up valuations. Competitive advantage here is how a business practices or implements business strategies and is useful for implementing objectives and strategies to compete in the market (Porter & Siggelkow, 2008). There are also three general strategies for businesses that want or aim to have above-average performance in the industry taken, namely 1) Cost Leadership, 2) Differentiation, and 3) Focus (Pulaj et al., 2015). The competitive scope can greatly influence and significantly impact competitive advantage. Competitive advantage also affects the company's valuation. Meanwhile, Chiun-sin Lin and Chih-Pin Huang et al., (2011) research states that competitive advantage affects company valuation. The importance of assessing start-up valuations in terms of company size, profitability, industry growth in line with the economy, market traction, and competitive advantage is used to attract investors. Therefore, it is necessary to research the effect of company size, profitability, market traction, and competitive advantage on start-up valuation in logistics aggregators (Case Study at PT Linknau). The objectives of this study are as follows Describe the financial performance of start-ups in logistics aggregators at PT Linknau and can be considered by investors in making investment decisions by looking at these factors. RESEARCH METHODS The study was conducted from January to March 2023. The data used in this study are primary data and secondary data. Primary data is in the form of interviews conducted in- depth interviews with the CEO of PT Linknau, and secondary data is in the form of financial statements of start-up Companies PT Linknau from 2019-2022. There are also data as support for this research in the form of journals, theses, and books as research support. This study used a descriptive and verification approach using primary and secondary data. The descriptive approach provides an overview of the company's financial condition and ability to provide added value for investors in PT Linknau's start-up company. RESULT AND DISCUSSION Company Conditions The general description of the company consists of a profit and loss statement and a company balance sheet. The research's main results are calculating the valuation of Linknau's start-up using real options, venture capital, and first Chicago methods. Furthermore, the three valuation methods will produce a valuation value for PT Linknau and can be used to increase the company's capital. PT Linknau has been operating since 2019, and the following is a summary of the company's financial statements. Table 1. Profit and Loss Report of PT Linknau Income Statement 2021 2022 Nominal Growth In Idr Income Services - Jne 35,895,093 358,950,930 323,055,837 Services - Fast 2,094,419 196,875,374 194,780,955 Shafira Elvina Putella 219 Services - Anteraja 130,500 78,039,000 77,908,500 Services - Sap 2,682,485 53,649,710 50,967,224 Services - 21 Express 79,047,364 229,237,355 150,189,991 Services - Ninjavan 4,196,980 88,136,579 83,939,599 Other Income 17,100,000 5,000,000 - 12,100,000 Total Income 141,146,841 1,009,888,947 868,742,106 Total Cost Of Business 81,145,656 527,081,239 445,935,583 Gross Operating Profit 60,001,185 482,807,708 422,806,523 Operating Costs 50,726,129 99,575,391 48,849,262 Salary & Allowance Costs 1,065,902,649 895,358,225 - 170,544,424 General & Administrative Expenses 125,468,886 178,642,600 53,173,714 Total Operating Costs 1,242,097,664 1,173,576,216 - 68,521,448 Net Operational Profit/(Loss). - 1,182,096,479 - 690,768,508 491,327,971 Other Income/Expenses - 4,922,667 5,518,309 10,440,976 Total Other Income/Expenses - 4,922,667 5,518,309 10,440,976 Net Profit/(Loss) Before Tax - 1,187,019,145 - 685,250,199 501,768,947 Corporate Income Tax - - - Net Profit/(Loss) After Tax - 1,187,019,145 - 685,250,199 501,768,947 Table 1. PT Linknau Balance Sheet Report Balance Report 2021 2022 Nominal Growth In IDR Asset Current assets PettyCash 124,236 3,192,865 3,068,629 Bank 864,108,190 498,521,849 - 365,586,341 Accounts receivable 86,580,000 3,257,500 - 83,322,500 Other receivables - 3,885,450 2,580,375 6,465,825 Investor Receivables 215,750,000 35,000,000 - 180,750,000 Other Current Assets 4,276,628 4,276,628 - Input VAT 5,945,325 42,538,096 36,592,772 Total Current Assets 1,172,898,929 589,367,313 - 583,531,615 American Journal of Economic and Management Business Vol. 2 No. 6 Jun 2023 220 Balance Report 2021 2022 Nominal Growth In IDR Fixed assets Fixed Assets - Office Equipment 177,391,358 191,617,848 14,226,490 Intangible Assets 15,000,000 15,000,000 - Total Fixed Assets 192,391,358 206,617,848 14,226,490 Depreciation & Amortization Accumulated Depreciation - Office Equipment - 33,636,042 - 43,726,855 - 10,090,813 Accumulated Amortization - 10,000,000 - 14,500,000 - 4,500,000 Total Depreciation and Amortization - 43,636,042 - 58,226,855 - 14,590,813 Total Assets 1,321,654,245 737,758,307 - 583,895,938 Liability and Equity Short Term Liabilities Accounts payable - 41,732,699 41,732,699 Exit VAT 9,686,874 69,308,436 59,621,562 Other Debt - Investors 4,200,000,000 4,200,000,000 - Long-term obligation - - - Total Liabilities 4,209,686,874 4,311,041,135 101,354,261 Equity Paid-up capital 500,000,000 500,000,000 - Retained earning - 2,201,013,483 - 3,388,032,629 - 1,187,019,145 Current Period Revenue - 1,187,019,145 - 685,250,199 501,768,947 Total Equity - 2,888,032,629 - 3,573,282,828 - 685,250,199 Total Liabilities and Equity 1,321,654,245 737,758,307 - 583,895,938 Based on the financial statements above, in the 2022 profit and loss report, PT Linknau recorded a net loss of -685 million IDR. This condition improved compared to the position in the previous year, where the company recorded a net loss of -1.18 billion IDR. This condition was supported by an increase in revenue of 868 million IDR and a decrease in salary costs of -170 million IDR. Regarding the financial balance, the company's total assets decreased by -583 million IDR, most of which came from a decrease in bank cash of -365 million IDR. Total Liabilities also increased by 101 million IDR from the increase in Shafira Elvina Putella 221 trade payables and outgoing VAT. Total Equity decreased by -685 million IDR following an operating loss in 2022. The Real Option Method of Valuation Method at PT Linknau The Real Options method is used in PT Linknau's valuation in this study, assuming that management can carry out business operations by obtaining funding from external parties (investors) or without additional funding. In addition, Real options valuation is very useful in its application to optimize the value of a strategic investment decision by evaluating several options under certain conditions with a different order of evaluation to obtain optimal results and develop several options. Existing and determined strategic decisions that serve as an advantage in the future. In this method, the authors use data from the financial statements owned by PT Linknau and projected financial statements for the next 5 years. There are 2 scenarios used in making financial report projections, namely with additional financing of 2 billion IDR and without additional financing. With data processed from PT Linknau's financial reports, it is found that if additional financing is obtained from external parties, the revenue growth will be 339%. Meanwhile, revenue growth is projected at 172% without additional financing in 5 years. From these data, the projected cash flows and present value of cash flows are obtained as follows: Table 2. Real Option Model Cash Flow Projections In IDR million 2023E 2024F 2025F 2026F 2027F Probability Present Value With External Funding 421 768 1,790 4,257 5,336 65% 3,933 Without External Funding 84 154 358 851 1,067 35% 787 The present value of flows with and without external funding is 3.9 billion IDR and 787 million IDR. The author uses a probability that 65% of the company will get external funding and 35% without external funding. Using these probabilities, the present value of expected cash flows is 2.8 billion IDR. Table Error! No text of specified style in document.. Option Value Calculation Expected PV 2,831 Investment Cost 2,000 Option Values: 831 Furthermore, to calculate the option's value, cash flow expectations must be reduced by the investment value, where the value of the option is 831 million IDR. The PT Linknau management considers this option's value in determining whether the company needs external funding. The Venture Capital Method of valuation method at PT Linknau In the valuation method of The Venture Capital Method, company value is assessed from the net present value of future cash flows in an optimistic scenario. This valuation calculation uses a specified timeframe and interest rates representing high investment risk. The Venture Capital Method calculates the value of a start-up company by assessing future cash flows using a comparable and market multiple approach. Furthermore, start-up companies are discounted using a high discount rate in accordance with the company's high risk. In the case of PT Linknau, with the current conditions, the company needs to obtain American Journal of Economic and Management Business Vol. 2 No. 6 Jun 2023 222 funding from investors of 2 billion IDR to increase the company's revenue growth by 3.4 times within 5 years. The author uses a net income approach to calculate the exit value of investors who will provide funding. The company's growth projection can be seen in the following table. Table 3The projected growth of PT Linknau's profit and loss balance In IDR million 2023E 2024F 2025F 2026F 2027F Revenue 1,923 2,727 4,086 6,539 8,439 EBITDA 62 362 1.109 2,723 3,359 NetIncome 68 368 1.116 2,730 3,366 Net income growth grew from 68 million IDR to 3.4 billion IDR within 5 years after receiving funding from investors. Using the value of net income in 2027, the author uses a revenue multiple of 5x to determine the exit value of investors when they want to take advantage of their investment in PT Linknau. The exit value obtained using the multiple revenue method is 16.8 billion IDR. Furthermore, the company's valuation value is calculated by calculating the present value of the exit value using DCF with a discount rate of 35%, considering the level of risk obtained by investing in start-up companies. Table 4. Post-Money Valuation Rate of Return 35% Post-Money Valuations 3,753 The valuation value after the investment ( Post-Money Valuation ) was obtained at 3.8 billion IDR. According to a comparison of investment value and post-money valuation, investors are entitled to 53.3% ownership of the company. Table 5Pre-Money Valuation and Ownership Proportion Post-Money Valuations 3,753 Pre-Money Valuations 1,753 VC Ownership 53.3% This method also allows the author to compare the company's valuation before and after the investment by reducing the Post-Money Valuation with the investment value. Thus, the company's value before investment ( pre-money valuation ) is 1.7 billion IDR. The First Chicago Model of valuation method at PT Linknau The First Chicago method is in many ways similar to DCF. However, this method considers several scenarios that indicate uncertainty in business growth. The First Chicago Method is a weighted average of three DCFs, one for each scenario. The growth rates assigned to these scenarios differ from company to company, depending on several factors. These factors are scenarios in which the company has optimism in terms of performance growth, scenarios in which the company operates with reasonable growth, and the last is the scenario in which the company operates in pessimistic conditions. Since there are differences in terms of uncertainty, the probabilities of each scenario are also different. In the case of Shafira Elvina Putella 223 Norsk Hydro, the ideal scenario is given a probability of 90% and 5% in the best and worst scenario, respectively. In the case of PT Linknau, the probability of an ideal scenario is 60%, an optimistic scenario is 10% and a pessimistic scenario is 30%. The probability of the pessimistic scenario is higher than the optimistic one because, considering the current condition of the benchmark interest rate, which shows an increasing trend, it will be more difficult for companies to pursue higher growth rates than before. The following is the calculation of The First Chicago Method's valuation. Table 6. Valuation The First Chicago Method In IDR million 2023E 2024F 2025F 2026F 2027F probability DCF Optimist Scenario 632 1.152 2,685 6,385 8.004 10% 5,899 Ideal Scenario 421 768 1,790 4,257 5,336 60% 3,933 Pessimistic Scenario 84 154 358 851 1,067 30% 787 Weighted Average Valuation 3,185 From the above scenario, the present value obtained under optimistic cash flow conditions is 5.9 billion IDR, in the ideal scenario 3.9 billion IDR, and 787 million IDR in the pessimistic scenario. To calculate the valuation value of The First Chicago Method, the author must calculate the present value, which has been weighted based on the probability of each scenario. These data obtained a weighted average valuation of 3.2 billion IDR. The valuation value found by The First Chicago Method is consistently higher than the DCF calculation because it takes into account both optimistic and pessimistic scenarios. The valuation calculation from The First Chicago Method is also more relevant because, in the real world, there are probabilities of success and failure determining factors for business success. Therefore, the authors believe that The First Chicago Method's valuation adequately represents the accuracy of PT Linknau's company value. CONCLUSION Based on the research results above, it can be concluded that the financial performance of start-ups in logistics aggregators at PT Linknau can be explained using company valuations calculated or measured using three methods, namely the Real options method, the First Chicago method, and the Venture Capital Method. The results show The Real Options method is used to optimize the value of strategic investments by considering the existing options. This study projected financial statements for 5 years with and without additional external financing. The results show a company valuation of 2.8 billion IDR considering the probability of additional occurrences without external funding. Furthermore, the VCM method assesses the company based on the investor's exit value. In the case of PT Linknau, the company's valuation was found to be 3.8 billion IDR. Finally, the First Chicago method is used as a weighted average of the three DCFs to address uncertainties in business growth. Probability is given in each set scenario. In the case of PT Linknau, the valuation value obtained was 3.2 billion IDR. In the case of PT Linknau, the company is in the logistics technology industry, and the company level is already growing. It has started to have customers, so the company's revenue has started to cover operational costs even though it is still in a loss condition. Under these conditions, the authors consider The First Chicago American Journal of Economic and Management Business Vol. 2 No. 6 Jun 2023 224 Method to be the most suitable company valuation method for assessing PT Linknau's company valuation. The main reason why this method is the most suitable is that currently, the company is already in a condition of generating operating income, according to Damiano et al. (2020). REFERENCES Bowdish, M. E., D’Agostino, R. S., Thourani, V. H., Desai, N., Shahian, D. M., Fernandez, F. G., & Badhwar, V. (2020). 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