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.