Subscribe Intellectual Indies and press the bell icon and never miss any update I was getting request of making a video in which we can learn what is the valuation of the company I have an idea..I want to go to venture capitalist..angel investors But how much valuation of company should I make? I want to have aco-founder in my company..how much percent stake should I share with him? So keep watching this video..today we will talk about this Before going to any investor you have to check what’s the valuation of your company There are basically 2 methods for valuation..First : ScoreCard method As the name suggest what we do here,pick up a company of same category as yours which has same stage as yours..Let’s say you are a startup which is 6 months now..so you will pick up a company which is on the same stage and of 6 months Not only 1 company..but all companies of this range will be picked up..and will check how much investors they got on what valuation And then average will be calculated Let’s say the average of companies having same catgory comes out to be 1 Crore So what will VC do here…it will compare how are your management skills How is your finance skills,business model? How is your competition? have a patent or not? whats your USP? So based on this,they will add and subtract some percentage For eg.let’s say you have a company which has no competition Then you get +20%.if you have petent too..then also +20% But your educational qualification is not that much.so -30% Your company’s architecture is not good..so again -5% So like this they will add and subtract on the average valuation and your net aluation will be calculated This method is rarely used..the most common method used is VC method..so let’s understand that here Let me give you an example to make tou understand this Your company’s current sale annually is 10 crores VC thinks he cam sell your company at 10X more to some big company after 5 years So valuation of your company at this time is 10 times i.e.100 Crore But this is after 5 years. But VC is a hungry man he wants that every year he should get 100% return After 5 years yours company’s valuation will be 100 crore So in 4 years..how much it will be? Half of it We are assuming 100% return..so how much? 50 Crore after 3 years..25 crore In 2 years..12.5 crore In 1 year..6.25 crore..so this is your company’s current valuation If you give 50% stake to VC..then you will get half of it and 50% will be gone So in short..your company’s sale this year was 10 crore And how much valuation? 6.5 Crore Now this thing can vary a little Let’s say the 100% can be more or less..depends on how they want to take the risk What they think about the potential? Thre are many factors as we talked in scorecard method How are the managers,technologies,how many patents..how much market size and market share.. Competion? So due to this factors that 100% may vary In technical terms we call that 100% as IRR..Internal Rate of Return.and the 100 crore..i.e exit value when it will exit And that we multiplied with 10,that was exit multiple One most important thing is the 6.25 crore we talked about is your post valuation In this vc will also invest so they try to negotiate with company on the pre valuation Like if you demand 25%,then they will say 25% is ours and will minus that So the value after minus will be the pre valuation So if you are going to investor,then negotiate on post valuation Dont do it on pre valuation. I am awaring you before hand So guys,this topic ends here,hope you understood..if you have any problem..ask me in comments Dont forget to subscribe..share and like as well..bye..good night..khuda hafiz..shabba khair..