Valuation for Start-ups…What is your start-up worth?

Parag DholInventus Advisory Services India (P) Ltd.

Nidhi Gupta

• Early-stage, tech-focussed VC Fund• Internet, Mobile, Software & Tech-enabled Services

• Investment Size: $1-3M to start with

• Team:

• Investments:

• Find us at www.inventusvc.com

Theory

What is Value?• Quotable quotes

– “Value lies in the eye of the beholder.”– “A broker knows the price of everything and

the value of nothing.”• Valuation is a systematic, disciplined approach,

not (always) a science.• Value = Monetary estimate of the benefit from

owning an asset• Useful for

– Raising Capital– Selling /buying / merging businesses and companies– Public floatation

Performance – Return – Valuation

Financial Performance

ReturnExpectation

Valuation Multiple

EquityValuation

• Sales• EBIDTA• EBIT• PAT

• Value / Sales• Value / Profit• Value / EBIDTA• Value / EBIT

Steps in Valuation• Sound business plan - underlying assumptions

• Forecast financials: P&L, B/S, Cash Flow• Appropriate method of valuation• Estimate valuation• Test Valuation under various scenarios• Objective behind purchase – passive, JV, strategic investment, control

• Premium for strategic objectives, such as “control”.

Practise

Guilty as Charged….• Series A Investors (typically)

– Sometimes, start-up Stage

• Valuation by a Series A Investor; Ad-hoc combination of…– Experience– Thumb-rules– Gut-feel– Fundamental Analysis– Comparison with relevant matches

Other Thoughts….• DCF: Limitations

– Forecast for next 5-10 years?– Hard to predict cash flows– What discount rate to use?– Terminal value

• Porter’s Five Forces framework

• Valuation depends on stage

Seed Start-Up First Second Late Exit Stage Stage Stage

Art Science

Drivers of Valuation• Environment Related

– Macro-economic outlook – Industry Outlook

• Firm Related– Fundamentals of the firm, esp. strategic aspects.

• Deal Related– Stage of investment and expected investment horizon – Relative size of exposure in relation to the size of the deal.– Previous round investors’ expectations – Exit prospects and path

• Valuation Trends– Comparable deals. Caution : Compare likes.– Public market valuations and liquidity

What else matters?

Liquidation Preference

4.8 4.0

15.2 16.0

0.0

5.0

10.0

15.0

20.0

$M $M

Founders

VC

1x Participative LP

1x Non-Participative LP

crorescrores

1 crore raise, 4 crores pre-money; Strategic Sale at 20 crores

What got us here?

Source: Upfront Ventures

US VC capital invested ($B)

$ M

illion

s

Source: Venture Intelligence India

The destinies of all followers lie in the hands of their leaders

India VC capital invested

Valuations

Source: Dow Jones VentureSource; Upfront Ventures

Do you expect valuation expectations to go up, down or remain about the same as previous quarters?

Source: Upfront Ventures Survey; Jan 2016; 155 VCs

Overall mood…..

Source: Upfront Ventures Survey; Jan 2016; 155 VCs

Gravity defying business models….

On the margin…..

Thank You!

parag@inventusvc.com