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Valuation for Start-ups…What is your start-up worth?
Parag DholInventus Advisory Services India (P) Ltd.
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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
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Theory
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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
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Performance – Return – Valuation
Financial Performance
ReturnExpectation
Valuation Multiple
EquityValuation
• Sales• EBIDTA• EBIT• PAT
• Value / Sales• Value / Profit• Value / EBIDTA• Value / EBIT
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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”.
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Practise
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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
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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
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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
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What else matters?
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Liquidation Preference
4.8 4.0
15.2 16.0
0.0
5.0
10.0
15.0
20.0
$M $M
Founders
VC
1x Participative LP
1x Non-Participative LP
crorescrores
1 crore raise, 4 crores pre-money; Strategic Sale at 20 crores
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What got us here?
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Source: Upfront Ventures
US VC capital invested ($B)
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$ M
illion
s
Source: Venture Intelligence India
The destinies of all followers lie in the hands of their leaders
India VC capital invested
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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
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Overall mood…..
Source: Upfront Ventures Survey; Jan 2016; 155 VCs
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Gravity defying business models….
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On the margin…..