Valuation of Startups - How VCs and Angels go about the process of valuing a business

1. Valuation of Startups
How it happens

2. In the business world, the rearview mirror is
always clearer than the windshield
~ Warren Buffet

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

4. Where are you?
Source: Wikipedia

5. Types of Investment
Source 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

6. Some Milestones
Source Age Revenue
Valuation
Investor
Venture
Launched
0 - 6 Months 0 20 - 50 Lacs FFFF
Product
Launch - Few
Paying Cusomers
6 - 12 Months
Early Revenue
Small
1 - 2 CR
FFFF / Individual
Angels
Stable
Business -
Regular
Customers Found
12 - 18 Months 15 - 30 Lacs 2 - 5 CR
FFFF / Angels /
Seed Funds
Product-
Market Fit -
Consistent
Customer Growth
18 - 24 Months 25 Lacs - 1 CR 4 - 10 CR
Angels / Seed
Funds / Some VCs
Business
Model Fit - Clear
Growth Path
24 - 36 Months 1 CR - 5 CR 10 CR - 50 CR Venture Funds

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

8. Convertible Debt Note
There seems to be no definite basis to value

9. 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

10. 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

11. 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

12. ~ Ann Landers
Too many people today know the price of
everything and the value of nothing.

13. Download the Presentation at:
http://www.slideshare.net/viveksrini
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