What is Valuation in Shark Tank India?

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.

How do sharks determine the valuation of the business?

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:

1. The growth potential of the business
2. How big is the market for the business?
3. The background of the entrepreneurs
4. Their presentation skills
5. Whether they have any intellectual properties
6. How well-established the brand is?
7. Scalability and more

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.