What valuations are early stage startups seeking in India ?

We (@vinitaananth and I) got 264 requests for funding in 2011. Of those we met with about 50 companies and ended up funding 3 (we lost out on 2 companies, one because of valuation and another because of mis-communication) . The companies were from across multiple categories including SaaS, eCommerce, Mobile applications, education and hospitality.

The number one question I get from entrepreneurs is what is the valuation I should expect at the seed round? Second question – “Is there a formula or spreadsheet that I can calculate my valuation”?

As many people might have told you already, there is NO standard formula for valuations. None whatsoever. I wish there was. There are several methods or techniques people use to get valuations, including

(a) # of engineers – mostly in cases where there are all star engineers from IIT / Google, etc.

(b) market size

(c) revenue multiple (if applicable)

(d) forward revenues and

(e) made up on-the-fly and pulled out of thin air.

If I had to guesstimate the % of times these different techniques are used, I’d say 80-90% are of type (e) – grin.

Of the 50 companies we met, we got to talking numbers with 20+ of them. Bear in mind these were all types of companies. There were 4 distinct buckets of valuation that we saw, and it was regardless of traction, product, market, etc.

1st: was valuation of 1 CR ($250K), – this was typically 2 people with an idea and early prototype, looking to raise about 10-20L ($20K – $40K)

2nd: 1 CR to 5 CR ($250K – $1M), – typically SaaS & education companies with 1 founder, looking to raise about 10L – 50L ($20K – $100K)

3rd: 5 CR to 10 CR ($1 M – $2M), looking to raise between 40L – 1.2 CR ($90K – $250K)

4th: greater than $2M – this was typically company with customers & some traction/revenues, many eCommerce companies were in this bracket, and they were looking to raise anywhere from 1.25CR to 4 CR ($500K – $750K)

As expected, the number of companies seeking higher valuation were few. We saw 8 companies in the first bucket, 7 in the second, and 4 each in the remaining 2 buckets.

As you can also see the implicit assumption is that the expected ownership of company to the seed investors was going to be about 10%. I have hear horror stories from many entrepreneurs that some angels were asking for 20-30% of the company at the seed round, but I have no way to confirm that.

Caveats: This is only one investors view, limited data set and is across multiple categories and sectors, but gives you a view into some of the numbers startups are asking for, YMMV.

P.S. The companies I actually funded dont want me to share either their names or numbers, so I apologize for being opaque on that. I dont get it, but sharing of data and information by a lot of Indian entrepreneurs and investors is limited to non-existent and leaves a lot to be desired.

One thought on “What valuations are early stage startups seeking in India ?”

  1. Good post, and thanks for sharing. At the end of the day, these are bi-lateral transaction, and not market based. So, whatever makes sense for the buyer and seller, shall be it. BTW, I have personally seen 45% (given and) taken away at seed/angel stage, and a rather interesting 3.5/7.0% at Series A. I must say, you are indeed a kind man, Mukund! And I guess thats (kindness) the difference between a VC and a trader.

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