Valuation of Startups

How it happens

In the business world, the rearview mirror is always clearer than the

windshield~ Warren

Buffet

~ Unknown

A thing is worth what it can do for you, not what you choose to pay for it.

Where are you?

Source: Wikipedia

Types of InvestmentSource

Value of Investment

Time of Entry

FFFF / Angel

1 CR to 5 CR 0 - 24 Months

VC 2 CR to 200 CR 18 - 60 Months

PE > 50 CR 7 - 10 Years

IPO > 100 CR 5+ Years

Some MilestonesSource Age Revenue

Valuation

Investor

Venture Launched

0 - 6 Months 0 20 - 50 Lacs FFFF

Product Launch - Few

Paying Cusomers

6 - 12 MonthsEarly Revenue

Small1 - 2 CR

FFFF / Individual Angels

Stable Business - Regular

Customers Found

12 - 18 Months

15 - 30 Lacs 2 - 5 CRFFFF / Angels /

Seed Funds

Product-Market Fit - Consistent Customer Growth

18 - 24 Months

25 Lacs - 1 CR 4 - 10 CRAngels / Seed

Funds / Some VCs

Business Model Fit - Clear

Growth Path

24 - 36 Months

1 CR - 5 CR 10 CR - 50 CR Venture Funds

~ Unknown

“There is always a time when you do not know the value of something”

Convertible Debt Note

There seems to be no definite basis to value

Valuation Models• Discounted Cash Flow

• Forecasts several years of revenue and expenses

• Discount the resulting cash flow to present value with the expected rate of return

• Cost to Recreate

• Usually a make Vs buy decision

• Snapdeal - ebay

Valuation by Angels and Funds

• Typically the basis of valuation is the exit

• Every fund has a target and an exit value in mind, they look at see what they need to take to achieve this

• They also look at the future rounds of dilution which may be needed and factor that into the valuation that they demand

Example• Fund Deployment required - 10 Crores

• 5 Year Profit target of the company being invested in - 75 Crores

• 5 Year target valuation of Business based on projected Profit - 750 Crores

• Target for fund returns in 5 years - 10X or 100 Crore

• Dilution asked is 100/750 = 13.33% + margin for dilution

~ Ann Landers

Too many people today know the price of everything and the value of nothing.

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