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October - 2016 - issue > CXO Insights

How Startups are Valued in India

Chander Sawhney, Partner & Head – Valuations & Deals, Corporate Professionals
Tuesday, October 25, 2016
Chander Sawhney, Partner & Head – Valuations & Deals, Corporate Professionals
Headquartered in Delhi, Corporate Professionals is a one-stop-shop of widest spectrum of corporate services. This leading corporate advisor helps customers with Corporate Restructuring, Corporate Compliance and Due Diligence, Investment Banking, Securities Laws advisory and many more.

The Internet based businesses globally have seen unprecedented growth and now with India taking a center stage in global markets because of high growth & reform expectations, demographic dividend and large market, many Indian startups have come out, especially in the last couple of years, building scalable businesses (substantially Tech-enabled) to solve a multitude of problems we face in our daily life.

The key characteristics of start-up companies is that they don�t have any past history, the operations has not reached the stage of commercial production, have negligible revenue with high operational losses and limited promoter�s capital infused with high dependence on external sources of funds, the investments are also illiquid in nature. Startup funding has dried up with investors looking when and if ventures would turn profitable.

Till 2015, Start Up valuations was closely linked to the valuation of U.S. and China tech start-ups and investors felt the fear of missing out. Investors were relying on a different metric of valuations, �GMV� gross merchandise value which is defined to indicate total sales value for merchandise sold through a marketplace over a period. The more you scale, the more was the valuation and focus was not on creating a profitable biz model.

Interestingly the trend of Investments has remained difficult and different in 2016. Many e-tailers have reported decline in number of orders significantly as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations. Instead many startups have reported Down Rounds (funding at lower levels) and so many of them have even shut their shops. Many startups have also changed their business model looking at unit economics and profitability.
The impact of above is that Angel Funding and Serial A Funding is at all-time low and now the focus is back on the basics � business model validation and positive Cash Flows.

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