VC Valuation IQ by madhukar sinha

Understand the VC math and valuation from the investors perspective. What is fair deal and a super deal for the investee and the investor shares Madhukar Sinha, India Quotient

1. 1

2. Agenda
•What is Venture Capital
•Valuation in Venture capital
•Understanding Termsheets

3. Private Equity & Venture Capital
“Private Equity” means capital to companies not quoted on a
stock market ,in exchange for an equity participation.
Venture Capital (VC) is a sub-class of Private Equity
•characterized by investments made for the purpose of
developing, launching, and expanding new products or
service offerings.

4. How VC’s work
Investor
Investor
Investor
VC
fund
Investor
Startup
Startup
Startup
Fund Managers make Fees and Profit Share

5. Capital Lifecycle
Seed (< $ 1 mil)Early Stages ($ 1 - 10 mil)Expansion/ ($ 10+ mil)
development
Angels IncubatorsAcceleratorsVenture Capital Private Equity &
Merchant Banks

6. Agenda
•What is Venture Capital
•Valuation in Venture capital
•Understanding Termsheets

7. VCs imperative- 10X in each deal
•The “Portfolio Effect”
–Out of Ten Start-ups Funded, with Re 1 each,
•2 successes at 10x or better 20
•5 ‘OK’ returns at 1.5x to 4x 10
•3 write-offs, total loss of invested money 0
•Total Gains on Investment of Rs 10 30
•Venture Capital is fundamentally an institutionalized form of
aiming for Outliers!
•Do we know which one is 10X? We expect each one to be
10X, and then pray

8. Super deal - Venture Capital Perspective
1.Goal - Build a highly profitable, industry dominant
company to be taken public or harvested in another way at
a high P/E multiple in 5-8 years.
2.Management Team - Well rounded with proven
experience in building a company. Team works well
together and is led by an industry star. Team must also
posses high commitment and integrity.
3.Product - Proprietary product with a sustainable
competitive advantage.
4.Market - Clearly identified large and growing market with
minimal current and near-term competition

9. Valuations- What is a Fair Deal?
Not So fair Deal
Current Revenue- 1 cr
Rev. at 5 years - 15 cr
Co. sold for - 60 cr
Investment made 2 cr
VC stake 60%
VC return 36 cr
VC return 18 times
Not So fair Deal
Current Revenue- 1 cr
Rev. at 5 years - 15 cr
Co. sold for - 60 cr
Investment made 2 cr
VC stake 15%
VC return 9 cr
VC return 4.5 times
Co. grew by 15
times,
VC got 18 times
Co. grew by 15
times,
VC got 4.5 times

10. Stake and Investment Lifecycle
What do we need to optimize?
Size of the circle or Promoter Stake?

11. Valuation Soft Parameters
‘We want to raise money and hire some people and build the
product. Of course, we will start with market research’
‘We have burnt the midnight oil for last two years to research
this need, built the product and have left our jobs a few
months ago because we just had to get started’

12. Valuation Soft Parameters
“We will hire a sales head as soon as we get set. We don’t
mind even hiring a CEO”
‘Here is the Sales Head, my co-founder, and I remain the
CEO till the company is large enough to attract a
professional ’

13. The Billion Dollar Club
Flipkart , Snapdeal are definitely in the club. These 
horizontal marketplaces are estimated to do sales of more 
than 5 Bn $ in FY 2015.

14. The Billion Dollar Club
Ola Cab , Zomato , Paytm, Housing  and many more 
are knocking on the doors for entry in the billion dollar 
club . The  next five years will probably have tens of billion 
$ companies from India.