Valuation for Startups - What is your Start-up worth?
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TiE Masterclass: Valuation for Startups This 3 part workshop conducted by Anjana Vivek, Founder Director of Venture Bean Consulting, Parag Dhol, MD, Inventus Capital Partners & Pavan Sondur, CEO & Cofounder, UNBXD
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Valuation for Startups - What is your Start-up worth?
- 1. Valuation for Start-ups…What is your start-up worth? Parag Dhol Inventus Advisory Services India (P) Ltd.
- 2. 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
- 3. Theory
- 4. 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
- 5. Performance – Return – Valuation Financial Performance Return Expectation Valuation Multiple Equity Valuation • Sales • EBIDTA • EBIT • PAT • Value / Sales • Value / Profit • Value / EBIDTA • Value / EBIT
- 6. 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”.
- 7. Practise
- 8. 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
- 9. 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
- 10. 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
- 12. Liquidation Preference 4.8 4.0 15.2 16.0 0.0 5.0 10.0 15.0 20.0 $M $M Founders VC 1x Participative LP 1x Non- Participative LP crorescrores 1 crore raise, 4 crores pre-money; Strategic Sale at 20 crores
- 13. What got us here?
- 14. Source: Upfront Ventures US VC capital invested ($B)
- 15. $Millions Source: Venture Intelligence India The destinies of all followers lie in the hands of their leaders India VC capital invested
- 16. 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
- 17. Overall mood….. Source: Upfront Ventures Survey; Jan 2016; 155 VCs
- 18. Gravity defying business models….
- 19. On the margin…..