Valuation Method for Early-Stage Venture Capital Investments

As part of a larger investment strategy, an investment firm is evaluating its portfolio of venture capital (VC) investments. One of the most critical aspects of this evaluation lies in the method used for valuing their VC-backed startups. The firm considers three different approaches to determining the fair value of these companies: the Discounted Cash Flow (DCF) method, the Market Comparable method, and the Scorecard method.

The DCF method involves estimating the future cash flows of a startup and discounting them back to present value. In contrast, the Market Comparable method assesses value relative to similar companies recently sold or financed. Lastly, the Scorecard method weighs various qualitative factors to assign a relative valuation based on other successful startups in the same sector.

Which valuation method is generally most suitable for early-stage venture capital investments, which typically face significant uncertainty and limited historical financial data?