Coverage by Bhat Dittakavi of Variance.AI on “Startup Valuations” by Vishnu Giri of PWC India
How much is my business worth? Why?
How do you value a startup? All Valuations of early stage startups are incorrect, but those Valuations are useful in investment deal flows.
Vishnu Giri, Partner at PWC
-When do you start Valuing your startup?
-What are the pitfalls?
-What are different valuation methods?
-Sector specific Valuations.
-Whom do you approach to get startups valuated?
-Ways to balance hardware startups?
What is value? How do you define value?
Value is whatever a buyer is willing to pay for and whatever a seller is willing to sell it for? This is nothing but market value. Intrinsic value, any cash generating business, is linked with what cash flows it generates. In case of Flipkart, there are hardly any cash flows. How did it get valued at $20B?
These are all future values discounted over ten years. Valuation of a given startup is today’s valuation based on future expectation.
$100 billion valuation in 10 years is possible. Look at Amazon and Google. Amazon hardly makes any money and Google has 20% margin.
Both the Valuation above seem right. Which one shall we pick? Here is a big gap. Valuation is highly subjective. It is what the investor perceives.
Valuation methods
Income: DCF
Market: Comparables of the industry or recent transactions.
Cost: Asset driven.
The earlier the stage of the startup, the more difficult to valuate. Subjectivity creeps in. If the company has lot of history, valuation gets easier.
Uber shifted on valuation from 25x to 8x in just five months. If we need to valuate Uber’s competitor Lyft, is there a sanctity in Valuing it based on Uber?
We have to keep in mind the path to profitability. If there is no money as there is trouble with the gross margin itself, hoe can you get to that path to profitability?
Seed funder valuates a company based on faith and belief on the company. Series A investor valuates a company based on growth prospects and exit expectations.
Valuing IP companies versus Services?
Every product company is different. Huge returns and huge Cashflow is one possibility. Lot of Capex and lot of Opex and hardly any Cashflows could be the other. It varies from product to product. There is no market comparable for a patent. We havr to see what money IP patent can generate.
It is easier to valuate devices company. We can see for a multiple in this case rather than discounted cash flows.
Q) Pitfalls?
1.Know how to run your operations. Flush it out means build a detailed operational plan. What is the market share I can get, pricing and so on.
2.Raising more funds than required is another pitfall. Eventually you may lose control of the company. Investors come and say “I have a minimum ticket size” . Try to resist such investors.
3.Don’t give controlling stake to investors.
4.Rights you give up through the investment contracts. Drag along, tag along or liquidation preferences. He may be getting 2x returns and he will drag you along. In the end you may not get anything..
If your company is valued at say 5 million and he invested say 2 million with a 3x liquidation preference. Then if you sell your company at a valuation of 6 million, he gets it all and you get nothing.

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