A short overview on how to build startups and value them through various stages of its life.

1. Valuing startups
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2. Aaj kuch toofani karte hain…
(Let’s do something rocking)
• Startups
• Valuation
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3. Yeh startup kya hai bhai?
What’s a startup?
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4. A startup is a business whose products, revenues &
business model are evolving
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5. Successful startups need ideas, products & teams
•A unique idea builds
a business that is
PRODUCT
•A great product
needs ana business that is
difficult to replicate
IDEA
•A great idea is the
precursor of a great
product
needs an
experienced team for
a flawless execution
TEAM &
EXECUTION
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6. Startups hope to reduce J curve while
expanding markets
Profits
S1
S2
S3
Time
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7. A well planned startup will systematically peel off
one risk at a time
• Execution
• Multi
location
• Co-founder
• Ideas
• Early
product
• Team
• Product
market fit
• Early
customers
• Customer
acquisition
strategy
• Operations
• Technology
location
• Multi
product
• Governance
• And many
more…
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8. Also, know as ‘Onion Theory of Start-up Risk’…
“Onions” = ?
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9. From “Tears” to “Woh Haseen Dard De Do”…
Assigning milestones at each phase
• Co-founder
agreement
• Opportunity
assessment
• Market scan
• Proto
type
• Core
team • MVP
• Business
model • Scaling
• Co-founder
• Ideas
• Early product
• Team
• Product market
fit
• Early customers
• Customer
acquisition
strategy
• Operations
• Technology
• Execution
• Multi location
• Multi product
• Governance
• And many more…
• Market scan team • MVP model • Scaling
Risks
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10. Kya kare ya na kare…Questions on startups?
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11. To value anything you need four things…
Growth Cash flows
Returns Risk
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12. …But startups don’t have at least 2 of 4
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13. Valuation moves from mystic to scientific as
startups mature
High
Degreeof
certainty
Milestone driven
Growth factor
Traditional
measures
Crystal ball
gazing +
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Degreeof
certainty
Just starting Early stage Mid-stage Late-stage
Discount to next round

14. At seed stage, most start-up valuation exercises
are almost akin to crystal-ball gazing…
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15. …That’s generally driven by FFFs
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16. Few other ways that are slightly better than
crystal ball gazing
• Berkus
– 5 factors - Idea, prototype, team, go to market, sales
– Adds a fixed $ value to each parameter (typically $500k)
• Risk factor summation
– 12 factors - Management, business stage, macro, manufacturing,
liquidity, competition, technology, litigation, international, reputation,
– 12 factors - Management, business stage, macro, manufacturing,
liquidity, competition, technology, litigation, international, reputation,
exit
– Scores ranging from -2 to +2, with each positive score assigned a $
value
• Scorecard Method
– 4 factors - Team, product, size, competition
– Average pre-money valuation in segment
– Weighted averages on each parameter vis-à-vis average group
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17. “Discount to the next round” is a good way to
get over “seed valuation” conundrum
• CCD or CCPS
• Usually 20-30% discount to next round
• Caps and floors
• Next round raised within pre-determined period
with increasing monthly discounts post that
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18. As you progress further, you may use a simple
growth factor (The VC model)
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19. Another example of the VC model
• Work out exit value – TV revenues * Multiple ($2mm * 15x =
$30mm)
• Define expected exit period – say 3 years
• Defined implied IRR required (Most VCs consider 30% as good IRR)
• Assuming an initial investment of $150,000, the investor needs an
exit value of roughly $330,000
• Back work %age of company, investor needs to own when it is
finally sold - 330,000/30,000,000 = ~1.1%
• Define expected dilution – say 25%
• Our stake at time of investment = 11%/(1-.25) = ~1.5%
• Implied valuation at time of investment = 150,000/1.5% = $10mm
post money
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20. Tying valuation to capital raise, milestones and
required returns
• Co-founder
agreement
• Opportunity
assessment • Proto type
Milestones
Self Seed/
20-25%
Angel/
15-20%
Pre-series/
10%
Series +/
sub 10%
Funding/
Dilution
• Co-founder
• Ideas
• Early product
• Team
• Product market
fit
• Early customers
• Customer
acquisition
strategy
• Operations
• Technology
• Execution
• Multi location
• Multi product
• Governance
• And many more…
assessment
• Market scan
• Proto type
• Core team • MVP • Business model • Scaling
Risks
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21. Traditional metrics set in as start-ups mature…
The Vantage Point moment
Metric Considerations
Trading
Value
Control
Value
Private Co.
Metric
 Forward P/E, P/CF, EV/EBITDA, EV/Revenue most
common – may show more than one metric
 
 LTM P/E, P/CF, EV/EBITDA, EV/Revenue most common
– may show more than one metric. Operational metrics
used too, particularly in commodity-oriented businesses
 
 Make sure to apply premium to unaffected price (i.e. pre-
announcement or pre-leak) 
Trading Multiples
Comparable Transactions
Premiums Paid announcement or pre-leak)
 Alternatively, may apply premium to trading multiples

 Choose appropriate target range of IRR
 Solve for price based on fixed leverage and range of exit
multiples
 
 Option to show with and/or without synergies 
 Use for distinct business segments or individual assets
with different value parameters

 Used as reference point
 52-week most common; also 3-months, 6-months, period
since significant event

 Used as reference point
 High/low research price targets; check length of time
forward and ensure consistent (or discount back)

Equity Research Price
Targets
Leveraged Buyout
Stock Price Trading Ranges
Discounted Cash Flow
Sum-of-the-Parts
Source: Literature searches; Barclays IB
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22. Ultimately, valuation at all stages is a tug of war
Founders
Investment
banks
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Advisors /
Mentors
Early
investors
VCs/PEs

23. While investors may agree to headline numbers,
they have ways and means to ensure a better deal
• Term sheets / exploding term sheets
• Pre-money / Post money
• Ratchets / Down round protection / Anti
dilutiondilution
• Claw backs
• Liquidity preference – straight, participating,
double participating
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24. Get Smart, Read Lot!
• Art of Start
• Founder’s Dilemma
• Lean Startup
• Hooked
• Traction
• Getting to Plan B• Getting to Plan B
• Venture Capitalists Handbook
• Valuation by Copeland
• Valuation by Damodaran
• Hail ‘Google’
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25. More questions, connect…
• Linkedin – www.linkedin.com/in/mhatremandar
• Twitter – @mandarmtweets
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26. THANK YOU.
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THANK YOU.