valuation of startups, tiecon mumbai, 2016
TRANSCRIPT
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!