STARTUP VALUATION- A VENTURE CAPITALIST PERSPECTIVE

Abstract

Entrepreneurship has seen a meteoric rise in India in the past decade. With better access to resources, change in the mindset, high smartphone penetration, and India being considered an investment opportunity apart from China, the Indian startup ecosystem has evolved into a dynamic, vibrant, technologically sound, and innovative ecosystem. It took India to mint its first 19 unicorns eight years, and today India now has 100 unicorns to its name in 2022, out of which more than 20 were recognised in 2021. This shows the remarkable journey of the Indian Startup ecosystem and how far we have come. But this evolution has also brought in some challenges, one of them being valuing a startup. A startup cannot be valued through the already existing traditional methods that rely on past data. It depends on the idea, the product or service, the founding team, and the intellectual property that the startup holds. Traditional valuation methodologies that use either the cost approach, the income approach, or the market approach are not valid in this case because a startup might not have any financial records, the product might be new and groundbreaking, or there might not be any existing comparable transactions in the industry, etc. In this case, other valuation methodologies come into play that can integrate probability into account, value the intangible assets of the firm, understand the new and emerging business models, and adapt to them. These evaluations are essential not just for the entrepreneurs or the company itself but also for the people, the institutions, and the consumers investing in the company. Hence, this paper attempts to understand startup valuation from a venture capital context using qualitative analysis. Venture Capitalists not just bring in funds or capital to the startups but also provide experience, network, and insights that help them reach new heights. Therefore this paper concentrates on the venture capital’s view and preferences while investing in a startup.