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New businesses normally have few assets. Under this approach, the market value of all the assets is assigned. Assets include current assets also. Apart from that, a value of intangibles must also be assigned. The combined value will be the value of the business.\n

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top 5

TOP 5

TECHNIQUES

FOR STARTUPS

VALUATION IN

INDIA

Figure 1

there is a famous saying

There is a famous saying,

“WHENEVER THERE IS A TRANSACTION, THERE IS VALUATION”. IT IS TRUE. BUT THE REVERSE IS NOT

TRUE- “WHENEVER THERE IS VALUATION, THERE MUST HAVE BEEN TRANSACTION”.

Many times valuation is isolated from a transaction. A start-up has developed an idea. It has validated the

idea. Business promoters would like to the value of their startups now and after, say, 1-3-5 years. Why

so? They need it to confirm that:-

Whether idea has been successful

Whether business model and business plan have been successful.

The growth rate of the business

Employees and other stakeholders’ satisfaction

Improvement in profitability

Strategic position in marketplace etc.

Start-up valuation is different from valuing any running business due to many reasons. Start-ups

may not have:-

Business experience

Operational skill set

Brand name for their products/services

Strong R&D base

Dedicated execution team

Experience of affording sudden economic shocks

A required amount of fund etc.

However, the best part of is that startup owners are not biased and secondly, they can be guided and

molded on the above issues easily.

Let us discuss some techniques for the startup valuation:

1.Asset approach: New businesses normally have few assets. Under this approach, the market value

of all the assets is assigned. Assets include current assets also. Apart from that, a value of

intangibles must also be assigned. The combined value will be the value of the business.

2.All principals and employees add value. Assigning a value to all paid professionals based on their

skills, Knowledge, experience and their contribution to the organization may be a fair idea.

3.Early customers and contracts in progress add value to the business. Existing customer

relationship and contracts should be monetized.

www.venture-care.com

Ask@venture-care.com

020-65 3636 33

4 use of discounted cash flow is also a good idea

4.Use of discounted cash flow is also a good idea. A reasonable number of future years for which

sales seem to be visible can be forecasted. The cash profit should be capitalized at a discount rate.

While estimating the discount rate care should be taken to factor the risk and uncertainty and if

possible a bit conservative discount rate should be chosen.

5. Earnings multiple approaches- earnings multiple is selected and the average earnings should be

multiplied to reach valuation figure. This approach is usually applied to a more mature start-up.

To conclude, whatever may be the techniques used for start-up valuation, care should be taken that:

It is unbiased

It is relevant

It considers all the aspects of valuation

It is explanatory

It serves the purpose of various stakeholders

It should help in making decisions

Venture Care can help you with the Business Valuation Services, Click here to know about

our Business Valuation Services in India.

If you have any query please comment in the comment box below or call us on 020 65363633

www.venture-care.com

Ask@venture-care.com

020-65 3636 33

contact us

Contact Us:

Branch Office (Netherlands)

Venture Care

Jonker Fransstraat 46,

3031 AV Rotterdam, (NL)

Phone:+31 614 575 275

Head Office (India)

Venture Care

Sr.No-29, Ajikyatara, kalaniketan,

Dhankawadi, Near Rajshri Shahu

Bank,

Pune, Maharashtra 411043 (IN)

Phone: (020)-65 3636 33

www.venture-care.com

Ask@venture-care.com

020-65 3636 33