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What is Valuation in Shark Tank India?

What is Valuation in Shark Tank India?

What is Valuation in Shark Tank India? Jithin Prem April 14, 2024 Knowhow Image source: @sharktankindia The Shark Tank India is one of India’s favourite shows among aspiring entrepreneurs of all ages. You might have heard the sharks say “Main aapko 10 crore ka nahi, 5 crore ka valuation de sakti hu” (I can’t give you a valuation of 10 crore, but 5 crore). So what is this valuation of a business they discuss in the show? Who decides the valuation of a business? Read on.  In layman’s terms, valuation is how much a business is worth. It is a fancy way of saying how much money a business makes in its lifetime or the future earning potential of that business.   The valuation of your business is more than just the liabilities and the cost of the assets you own.  The name and reputation, the sales that are happening or have happened in the past, and the growth potential are some of the factors that determine the valuation of your business.  Shark Tank Secrets: How is Valuation Decided?  An entrepreneur walks into the tank seeking investment from the sharks.  Once they convince the sharks to invest in their business, they offer either equity or debt.  Simply put, equity means buying a stake in a company and debt is a loan at a fixed interest rate.  But before they decide they discuss the valuation of the business.  Let’s say the entrepreneur offers 5% of his/her business for 10 Lakh rupees, the total valuation of the business would be ₹2 Crore.  How is this calculated?  Valuation of the business: Investment / Equity percentage  Total Valuation:  ₹10 lakh / 5% = ₹2 crore  So, here a 5% stake is worth 10 Lakh rupees and how much it takes to buy 100% of your company is the total value of your business, which is ₹2 Crore.  When the sharks enter the negotiation scene they might counter with strategic offers.  Now think of this scenario. If they think this is a very promising business, but the valuation is on the higher side, and they offer 10 Lakh for a 10% stake.  So, the valuation becomes ₹1 crore.  Total Valuation:  ₹10 lakh / 10% = ₹1 crore  You can see the perceived value of the company is reduced in this case.  However, the entrepreneur can propose a counter-offer and negotiate further.  Valuation Calculator Enter the investment amount and equity percentage offered: Investment Amount (₹): Equity Percentage (%): Calculate Valuation Total Valuation: ₹0 What Sharks Look for in a Startup While this is an easy-to-remember formula to calculate valuation, the sharks do not always stick to this formula explicitly. They consider other factors as well, such as: The growth potential of the business How big is the market for the business? The background of the entrepreneurs Their presentation skills Whether they have any intellectual properties How well-established the brand is? Scalability and more Types of Valuation Approaches in Shark Tank India Revenue-Based Valuation This approach calculates the valuation based on the steady flow of income through a startup.  Multiple times of monthly or annual revenue or industry-specific benchmarks are calculated via a simplified valuation calculator Shark Tank-style.  An example of this approach is Sugar Cosmetics. The valuation stands precisely above the steady revenue flows in a tough beauty industry.  By maintaining consistent sales and increasing market reach, Sugar Cosmetics has emerged as a high-value brand, emphasizing predictable income in valuation discussions. Market Potential and Size  Valuation isn’t just limited to present numbers; it depends on the potential of a company in the future.  Entrepreneurs who appear on Shark Tank look for startups which have immense market potential and scale.  This means analyzing trends in the market, customers’ demand, and their growth projections.  For example, BharatPe’s valuation in rupees portrays its supremacy in India’s rapidly growing digital payments arena. Profit versus Turnover  Although profitability is vital, a high turnover usually means that there’s great market demand, which will always be delayed to the profit.  Shaadi.com uses its huge user base and market presence as bases for valuation.  Its capability to ensure consistent engagement as well as adaptability with regard to market trends places value on the investment although it has delayed profits.  In this sense, this strategy shows that turnover is the main basis for assessing any potential startup.  Key Factors that Determine Valuation  Revenue Multiples It’s seen that if a company is earning consistently and growing, then that company is deemed more valuable.  Sharks compare it with similar businesses to understand if the company has room to grow.  It’s almost like checking if your new cafe is doing better or worse than the one across the street.  Team Composition  The value of a business is increased by a strong team and innovative, adaptable, and hardworking leaders.  It is like having the right crew on a ship; no matter the storm, they keep things on track.  Investors want assurance that the team can handle challenges and keep the business thriving. Assets and Liabilities  This is the balance sheet stuff. Cash, equipment, and even customer goodwill add value.  Liabilities such as loans and debts can pull it down.  But don’t worry; if a business has huge future potential, these liabilities often do not scare investors.  Market Trends and Timing  Timing can really make or break valuation. Cultural shifts such as eco-friendly products might also propel valuations when a business catches the wave of the movement.  It all comes down to being at the right place at the right time.  All these are taken into consideration for the investor to make an educated guess regarding the worth of a business and its future. Finding the valuation is not just a numbers game. Both the sharks and the entrepreneurs want a fair deal. As an entrepreneur or an aspiring entrepreneur, having a deep understanding of your market can help you get a higher valuation for your business even if your sales figures indicate otherwise. 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