What drives Valuation

If you are poor at basic math, please use your phone calculators

Why is valuation important

• $250Mn fund• Can handle no more than 25 investments• Most returns come from 1, 2 or 3 top cos• If the best co has to return the entire $250M,

how much should that company be valued?

Size of outcome vs multiple

Bruce Lee• $0.2 Mn investment

becomes 20 times

Gama Pehelwan• $20 Mn investments

becomes 6 times

Which co will ‘fit’ venture capital model?

Why is valuation important

• $250Mn fund• If the fund owns 20% in the co at exit, the

company has to be worth $1.25 Bn for the investor to make $250Mn

• Most likely, the fund will own less in the company due to dilutions

How to ‘talk’ Valuation

How to ‘compute’ Valuation

Various methods• Profitable companies with steady growth- P/E

multiple• Loss making cos, fluctuating profits- P/S

multiple• Other methods- number of subscribers, users, • Discounted Cash Flow• Desperate-so-work-backwards method

What drives valuation

• Revenue $1Mn• Growth 100% yearly• EBITDA -10%

• Revenue $1Mn• Growth 15% yearly• EBITDA +20%

What drives valuation

• Country: India • Country UK

What drives valuation

• Market Leader • Market No 2• Usually 0.6X the

multiple for the leader• No 3 gets 0.3/0.4X

What drives valuation

• Revenue $1Mn• Growth 100% yearly• EBITDA -10%

• Revenue $1Mn• Growth 15% yearly• EBITDA +20%

What drives valuation

• Revenue $1Mn• Growth 100% yearly• Selling design software

to boutiques

• Revenue $1Mn• Growth 100% yearly• Selling Tally type of

accounting software

What drives valuation- SAAS cos

What drives valuation for E-commerce cos?

• Best answer wins a gift!

What drives valuation

The impact of Apple, Amazon, Google, MS

Dilution vs size of the pie!

VC aur Ishq ke chakkar mein kabhi mat padna!

Angel round 1 cr

Series A 20 cr

Series B 65 cr

40%55%85%100%

Liquidation Preference

Liquidation Preference- $20Mn for 20%

Double Dip Liq Pref

So what liq pref is better?

Anti Dilution-VC protection from a down round

Founders65%

Angels10%

Series A25% - Series A of

$5Mn for 25%

Anti Dilution- Full Rachet

Founders65%Angels

10%

Series A25% Founders

29%

Angels4%Series A

42%

Series B25%

Series A- $5M for 25% Series B- $3M for 25%

Anti Dilution- Weighted Average

Founders65%Angels

10%

Series A25%

Founders46%

Angels7%

Series A22%

Series B25%

Series A- $5M for 25% Series B- $3M for 25%

Statutory Warning!

Timeline of Airbnb

Employee growth vs Revenue Growth

Ridiculous Valuations

Ridiculous Valuations

Ridiculous Returns

Amazon doesn’t care about profit

Marketshare

Amazon is just getting started. So is ecommerce. –Benedict Evans, A16Z

Startup is not about valuation. Its about building a product that is 10X better and

grows 10X faster than anything else.Thank You!

anand@indiaquotient.in