The riskier a startup is, the faster it should have to start making a profit and paying people back.
Conventional wisdom suggests that high-risk, early-stage ventures require 'patient capital' and long timelines. This paper introduces the Risk-Monotone Payback Horizon, arguing that because early-stage risk is so high, investors should actually demand faster fundamental validation to prove the business is viable before more capital is wasted.
Risk-Adjusted Payback Period Valuation for Startup Investment: A Stage-Calibrated Framework with Risk-Monotone Payback Horizons
SSRN · 6306924
Startup valuation remains among the most contested problems in finance, owing to absent or negative near-term earnings, extreme uncertainty, and the circularity embedded in the dominant practitioner heuristic: peer-group multiples used to set entry price, followed by DCF reverseengineering to produce post-hoc justification. This paper extends the Risk-Adjusted Payback Period (RAPP) model of Baek (2026) to the startup context, introducing four principal contributions. First, we establish the Risk