A 5 year old loss making Startup Valuation

Others 206 views 7 replies

skin zzz

19 Points Joined April 2016

hello fellow members

i am considering to study an industrial electronics technology startup company. est. in 2016., based in mumbai.

it's been making losses year after year. i checked their filings of 19-20.

sales of 65lakhs, loss of 91lakh. accumulated losses of 1.81cr on books till march 20.

employee salaries 72lakh, food and beverages 10lakh, travel expenses 22lakh. for year 19-20

total no of shares around 17k.

in august 2020 , ibbi professional based in kolkata has valued this company's share at Rs ~30,000 each.

which values this company at ~50cr.

i fail to understand, how a loss making ,low turnover company is valued at this valuations.

the company doesnt have any fixed assets. have electronics valued at 22lakh and depreciating.

they are looking for investors and want to allot shares on preferential basis at above valuation.

currently, apart from 2 promoters, there are around 12 other investors who invested during last 3-4 years.

could some one please explain whether this is a fraudulent company and how on earth they can get such crazy valuations ?

is it safe to invest in such company at such valuations ? how come they are even able to get 10-12 investors already ?

thanks

Replies (7)

Rama chary Rachakonda

Master in Accounts & high court Advocate

8977 Points Joined December 2011

You can approach business management institutions for research purpose. The various methods through which the value of a startup is determined include the (1) Berkus Approach, (2) Cost-To-Duplicate Approach, (3) Future Valuation Method, (4) the Market Multiple Approach, (5) the Risk Factor Summation Method, and (6) Discounted Cash Flow (DCF) Method.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

@ Rama where did you bag these valuations? They seem ok. Did you get them from MBA? I read all CA books and never came across this. I will further search. I know to interpret Altman’s z score. I thought this is enough.

@ skin zzz it was the n my mind to create a model or gather philosophies tomorrow. I’ll get back to you if anything useful comes up.

skin zzz

19 Points Joined April 2016

thanks guys, for your reply.

would highly appreciate to get more insights from the experts.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

I am not sure what it is like. Find out what is their share valuation techniques. I know three without dividend policy evaluations

Intrinsic value = FCFE cash flows / No. of shares outstanding..

yeild method (with dividend and without dividend)

and fiar value method = intrinsic method + yeild value/2

If you have their financial statements, try to find out why this company is growing.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Also, as long as the business continues its operations, even at loss, it can raise capital as long as they meet the directives of MCA

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Dividing the PV of the FCFE and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. See, here is another way to find out why share is valued still high. So, dont get worried not unless your buying anything. Even if you buy, you will not know how to value the firm because no of them in MBA and CA's know these different methods. Wait a minute I think this finance module has those analysis.

The earnings yield valuation method

Market valuation or capitalisation = P/E ratio x EPS or P/E ratio x Total earnings

The dividend growth model

The P/E ratio (earnings) method of valuation

Terminal values and company valuation= FCF/WACC

Asset based valuation = Total assets - creditors -pref shareholders

So, all the best.

SMIFS LIMITED

37 Points Joined October 2021

Even I find it surprising that such companies can be valued at such a high valuation and that too with no cash flow or profit margin this can mislead any future investor about the valuation of the company.