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
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”.
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
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