Key Factors in Private Equity Valuation using Venture Capital Method

As part of his investment strategy, a venture capital firm is evaluating a promising tech startup that specializes in artificial intelligence. The firm has observed the company grow its user base significantly in the last year, gaining traction in a competitive market. In determining the valuation of the startup, the venture capitalists consider various methods, including the discounted cash flow (DCF) approach and the venture capital method.

When using the venture capital method for the valuation, the firm assumes that the startup will be sold for a particular amount in the future (the terminal value) and discounts that value back to the present using a high discount rate that reflects the risk of the investment. Given that venture capitalists often expect a high return on their investments, the valuation can vary significantly based on the assumptions made regarding the startup's growth and the potential exit valuation.

Based on the venture capital method, what critical factor would have the greatest impact on the valuation of the startup?