The riskier a startup is, the faster it should have to start making a profit and paying people back.
March 19, 2026
Original Paper
Risk-Adjusted Payback Period Valuation for Startup Investment: A Stage-Calibrated Framework with Risk-Monotone Payback Horizons
SSRN · 6306924
The Takeaway
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.
From the abstract
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