Business Valuation Approaches

Why growth equity (Series C/D/E) is in a tough place and what it means. Public software cos are valued at <10x trailing ARR while private pre-IPO company multiples are often at 70-100x! So.. why are growth investors pumping private valuations? Well, management fees. 🧵 In a classic 2/20 model, VC / PE investors take 2%/yr of the assets they manage as "management fees" and 20% of the profits, or carry. If you want to make more money, the math is simple — raise and return a bigger fund! If your fund has had a good track record, you can always raise a bigger fund, but mo money, mo problems. a) It's harder to return and actually get carry b) You need to invest larger amounts to deploy it a) It's harder to return. Say you raise a $5B fund. To achieve a 4x, ignoring fees, it needs to be $20B. Assuming ~10% ownership at exit, you must be in cos worth a total of $200B.. in a fund deployment cycle of ~3yrs! The fund needs an Alibaba / OpenAI in 3yrs to return! b) You need to invest larger amounts to deploy it. Deploying $5B in $15M Series As would mean 300+ rounds which is infeasible. You need to do the bigger growth rounds — C/D/E — with $100M+ checks. But there's simply not that many good growth startups. So what happens? Every half-good growth round is oversubscribed (I've heard 3-4x on $100M+), and all the growth funds want to deploy capital there. Investors can't keep drawing fees without deploying. This inter-firm competition drives up the valuation! What happens to these companies? High valuations means crazy growth expectations. Like Bolt or Byju's, some will completely collapse. Others will need to take down rounds. It's too $$ to be acquired and they'll struggle to IPO cuz the public markets wont pay that price! Only a select few will make it. As it is, in the last 2yrs, public markets have been dry. Rubrik and Klaviyo, that IPO'd recently have ~$600M ARR at a $6B valuation, with a ~10x multiple. Exits are sparse, and the 2021 era vintage is overvalued. Many of these funds will not return. Who wins? Investors will rake in the sweet sweet fees. 2% of $5B is $100M /yr! When they realize they won't see their carry, they'll leave. Founders will often do secondary sales along the way, and be fine. Who loses? LPs will be good, not great. Liquidation preference means unless it goes to 0, investors get 1x+ back. Employees may be okay to bad. Their equity will go to 0, or worse, debt. They may have taken a loan to buy their options at a ridiculous price.

From Vanity to Viability ....What Startup Investors Now Demand Gone are the days when startups could raise millions on the back of impressive gross merchandise value (GMV) or vanity engagement numbers. Today’s fund managers have shut their wallets to superficial metrics They are writing cheques only for ventures that show a clear path to profitability, strong market fit, and customer stickiness. Here's what's changed: 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒊𝒔 𝒕𝒉𝒆 𝒏𝒆𝒘 𝒕𝒓𝒂𝒄𝒕𝒊𝒐𝒏 A consumer tech startup now needs ₹16–20 crore in annual revenue to qualify for Series A funding. Two years ago, half that amount was enough. 𝑭𝒖𝒏𝒅𝒊𝒏𝒈 𝒊𝒔 𝒅𝒓𝒚𝒊𝒏𝒈 𝒖𝒑 June 2025 saw just $460 million in VC flows and the lowest in 12 months. Total startup funding in H1 2025 fell 25% YoY to $4.8 billion. 𝑰𝒏𝒗𝒆𝒔𝒕𝒐𝒓 𝒅𝒖𝒆 𝒅𝒊𝒍𝒊𝒈𝒆𝒏𝒄𝒆 𝒊𝒔 𝒕𝒐𝒖𝒈𝒉𝒆𝒓 Spreadsheets are under a microscope. Revenue estimates must be realistic. Flaky projections are deal-breakers. 𝑷𝑬 𝒂𝒏𝒅 𝑽𝑪 𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒔 𝒇𝒆𝒍𝒍 𝒐𝒗𝒆𝒓 40% 𝒊𝒏 𝑯1 2025 Valuations have been slashed. Ceratain startups are now worth a tenth of their original value.  𝑪𝒂𝒔𝒉 𝒃𝒖𝒓𝒏 𝒊𝒔 𝒐𝒖𝒕. 𝑭𝒊𝒏𝒂𝒏𝒄𝒊𝒂𝒍 𝒅𝒊𝒔𝒄𝒊𝒑𝒍𝒊𝒏𝒆 𝒊𝒔 𝒊𝒏 Unicorns are being forced to slash costs, even if it means slower topline growth. In FY24, India’s top unicorns grew revenue by just 5.5%, down from 32% in FY23. But this helped reduce combined losses from ₹23,000 crore to ₹15,000 crore. 𝑰𝑷𝑶 𝒂𝒄𝒕𝒊𝒗𝒊𝒕𝒚 𝒑𝒊𝒄𝒌𝒊𝒏𝒈 𝒖𝒑 𝒃𝒖𝒕 𝒔𝒆𝒍𝒆𝒄𝒕𝒊𝒗𝒆𝒍𝒚 At least a dozen startups are IPO-ready, with SEBI clearance. While listings like PayTm and Ola struggled post-IPO, others like Eternal delivered strong returns. Over the next two years, VC-backed startup market cap is projected to double to $200 billion. 𝑲𝒆𝒚 𝑻𝒂𝒌𝒆 𝑨𝒘𝒂𝒚𝒔 India’s startup ecosystem is entering a new chapter One where metrics must meet money and hype must meet hard data. Founders must now prove that they’re not just storytellers, but strong operators who can deliver real results. The funding winter may linger, but the correction is long overdue and necessary for a more resilient, investor-trusted startup economy. Sources Wither Vanity Metrics – Financial Express Inc42: Indian Startup Funding Report 2023 YourStory: Funding Winter 2023 Tracxn: Startup Market Overview Q4 2023 #Corporategovernance #Independentdirectors #Startups #Investors #VC #PE #KPIs #Metrics

What kind of valuation might this year’s IPO candidates reach in the public markets if they were to go public based on 2024 year-end revenue estimates? Here’s a look at where Navan, Klarna, Circle, and Stripe stand and what their potential market valuations might look like if they go public. Navan: Business Travel’s Next Big IPO? Navan CEO Ariel Cohen has hinted that an IPO is on the horizon but wants to achieve profitability first. The business travel and expense management firm was last valued at $𝟵.𝟮𝗕 in 2022, with current revenue estimates exceeding $400M. Public B2B SaaS companies are trading at 9.8x revenue (F-Prime Fintech Index), which would give Navan a public valuation of around $𝟰.𝟭𝗕—less than half its last private valuation. Klarna: A Stabilized BNPL Giant Once valued at $45.6B in 2021, Klarna’s latest valuation stands at $𝟭𝟰.𝟲𝗕. With an estimated $2.2B in revenue, its EV/revenue multiple sits at 6.5x. Given that public lending peers trade at 6.6x, Klarna’s hypothetical IPO valuation would likely be around $𝟭𝟰.𝟴𝗕, aligning with its current private market valuation. Circle: Stablecoin Powerhouse Poised for Public Markets Circle’s CEO Jeremy Allaire reaffirmed the company’s commitment to going public, with its last private valuation at $𝟵𝗕. Holding over $50B in reserves, its revenue estimates hover near $2B. Payments companies trade at 5.1x revenue, suggesting a public valuation of $𝟵.𝟲𝗕—slightly above its last private market round. Stripe: The Payments Behemoth Everyone’s Watching Stripe, one of the most valuable private FinTechs, processes over $1T annually 🤯 With an estimated 2023 revenue of $16B, its IPO could be the most anticipated in FinTech. Applying the payments sector’s 5.1x revenue multiple, Stripe’s public valuation could reach $𝟴𝟮𝗕, a 17% premium over its last private valuation of $𝟳𝟬𝗕. Last week the news broke that Stripe is considering arranging a sale of shares held by employees that would value the company at $𝟴𝟱 𝗯𝗶𝗹𝗹𝗶𝗼𝗻 or more: https://lnkd.in/dnvDUyNK I highly recommend reading this original research piece I used as a source for more in-depth info on this topic: https://lnkd.in/d7WYAcC4 Find this helpful? [ 𝗿𝗲𝗽𝗼𝘀𝘁 ] Anything to add about this subject? [𝗶𝗻𝘃𝗶𝘁𝗲𝗱 𝘁𝗼 𝗰𝗼𝗺𝗺𝗲𝗻𝘁] Nice story, Marcel. Next! [ 𝗹𝗶𝗸𝗲 ] 

€800 billion a year. That's the price tag Mario Draghi says Europe must meet to stay competitive with the US and China. As an investor and sustainability entrepreneur, reading the Future of European Competitiveness report was eye-opening. It's clear that Europe has to close the innovation gap and invest boldly in clean energy and digitalisation, but this is only part of the challenge. Draghi emphasises that radical change is necessary to prevent the EU from becoming less competitive on the global stage. Here are a few key points from the report that resonate with me, both positively and with concerns: 👉🏻Scaling EU Companies: Draghi highlights that Europe is failing to scale its companies, which limits our global competitiveness. We have incredible innovation happening here, but the lack of support to take these companies to the next level is a major issue. 👉🏻Investment in R&D: The report points to underinvestment in research and development. If we want to remain at the forefront of sectors like clean tech and mobility, we need much more capital flowing into R&D, especially in emerging technologies like AI and renewables. 👉🏻Venture Capital: Draghi's report underscores the urgent need for more venture capital across Europe, a core message I strongly support. We need greater acceptance of venture capital as an asset class, especially in Germany, where the market remains risk-averse. This lack of funding pushes our most innovative companies to scale up elsewhere, particularly in the US. Europe needs to step up to provide the environment needed for startups to thrive and grow right here at home. 👉🏻Common Debt: The idea of joint EU borrowing for green and digital projects is essential to remain competitive, especially in areas like clean tech and mobility. This is a necessary step to unleash the full potential of the sector. 👉🏻The China Challenge: Europe's reliance on China, particularly in clean tech, needs to be rethought. I've seen firsthand how fierce the competition is in the electric vehicle space. While Draghi stresses reducing dependencies, I do think we must be cautious of the economic disruptions a rapid decoupling could cause. 👉🏻Streamlining Policy: Entrepreneurs are struggling with the slow pace of European decision-making, especially in green tech. We risk losing our competitive edge if we don't accelerate policy change. Europe has an incredible opportunity, but it requires bold action. Do you think Europe is ready to rise to the challenge, or will bureaucracy stand in the way? Let's discuss in the comments... #Draghi #Innovation #Sustainability #CleanEnergy #VentureCapital #Investment

Adobe tried to acquire Figma for $20 billion That deal was killed today So what's Figma actually worth today? Based on current comps, it's worth $11.10 to $11.95 billion I'll break it down below First, some history Figma was valued at $10B in June 2021 when it raised its Series E as the 1st chart from CB Insights details So the good news is that the $11.10B mark would be a step up from 2021 which is pretty amazing given the valuation multiples compression we've seen in private tech since So how did I get to this valuation? In September 2022, $ADBE announced its intention to acquire Figma for $20 billion Per CB Insights, Figma's ARR in 2022 was $400-$450M and reportedly growing 100% YoY This meant Adobe was paying a price/revenue multiple of 44.4-50x Let's assume that the growth persisted and they did $800M of ARR this year (2023) Now let's look at comps Specifically, below, we'll use design behemoth and former acquirer Adobe as well as Canva First, Canva Per CBI, Canva was valued at $25.4B in a secondary market transaction led by Coatue and ICONIQ Capital in August 2023 As you can see in the screenshot from CB Insights, Canva is expected to do $1.7B in ARR this year giving it a 14.94x price/revenue multiple based on this most financing Adobe trades at a price/sales multiple of 13.88x (graph below courtesy of YCharts) So a pretty tight range for these design software firms Applying the multiple range of 13.88-14.94x to the $800M ARR for Figma in 2023 would give a valuation of $11.10B - using Adobe's multiple $11.95B - using Canva's multiple This, of course, assumes 100% YoY growth in ARR. If Figma grew anywhere south of 68% YoY, it's valuation would then dip below the $10B market from June 2021 (using the higher Canva multiple) It's unclear if Figma will need to raise again soon but it's likely that it's valuation will be similar to slightly above the June 2021 mark (unless it's ARR growth exploded past 100%) It's also clear that the big tech M&A slump which we've been observing is likely to be chilled further with this transaction being scuttled As we noted in our Q3'23 M&A report, it was the first quarter in a long time that none of the big tech players had done a single M&A deal Sources: Q3'23 tech M&A report - https://lnkd.in/euXuFUGg Figma valuation - https://lnkd.in/eRHf_4vK Canva valuation - https://lnkd.in/e4PedRTR Adobe P/S - https://lnkd.in/e6SEsEmC

As Mario Draghi’s report released today demonstrates, the EU is falling behind global rivals because of limited innovation. Since 2019, the EU has created over 100 pieces of digital regulation. Whether you’re a technology startup or a small retailer, regulatory complexity is a minefield. Developing, launching or just using technology is harder in Europe than elsewhere in the world. Of course, “anything goes” is not an option and rules are required - but the EU is holding itself back at a time where it could be thriving. Our research with Public First shows that generative AI alone could add €1.2 trillion to the European economy. Much of Google’s innovation is led from Europe. We work with talented European entrepreneurs, businesses and innovators every day and see first-hand the benefits that the single market could yield for them. But a new approach is needed if Europe is not to miss the moment. Here’s what needs to change: 1️⃣ Shift from regulatory growth to economic growth: Europe doesn’t just create a huge number of regulations related to digital society - the regulations they create are often conflicting, untested and inconsistently implemented. The explosion of rules makes it almost impossible for Europe to create and nurture the next tech unicorns. Draghi is right that the EU now needs to focus on enabling innovation: promoting the use of digital technologies to innovate and drive through breakthrough advances. 2️⃣ Invest in R&D: To compete in AI, the EU needs to prioritise research and development, working with the private sector to incentivise it and make funding more accessible. The EU currently lags behind the US, Israel, South Korea, Japan, the UK and China on R&D investment. Without the right incentives to develop and roll out new technology, Europe is stifling its talent. 3️⃣ Build the right infrastructure: AI breakthroughs are only possible with the right computing technologies and data centres - plus the renewable energy to run them. So the EU needs to allocate more funding towards financing such infrastructure, as well as incentivising and enabling the private sector to do the same. 4️⃣ Prioritise skills & education: People will need support to seize the benefits of AI in their work and life. A revitalised European Skills Agenda should put skills and education at the centre, while AI should be added to school curriculums. Google wants to help Europe seize the benefits of innovation. Over the last decade, we’ve worked hand in hand with Governments to build new technology responsibly; train over 13 million Europeans in digital skills; and support over €179 billion in economic activity across the EU. As a European, I’m proud of this work, but I know there’s much more to do. Read Draghi’s report here: https://lnkd.in/epBxtymw

I have been building Valuation Models for 18 years! Some key points that I have learnt along the way.. Try these to improve your analysis significantly! ✅ Always understand the business before approaching valuation. This will form the core of your valuation model assumptions. - What does the company do? - How does it make money - What is the value chain? - Are their any competitive advantages that it has? ✅ Check for the financials. - Pick out annual reports, Punch in the data for last 4-5 years, and calculate ratios - Look at all major numbers and find out what they are. Other expenses are large - check what they are. Provisions in Balance Sheet are large - check them. - Look for trends in numbers and ratios - Are margins increasing, decreasing, or constant. Is working capital cycle moving around? Any other trends worth noticing? - Why are these happening? Try and identify what are the key reasons ✅ Projections - Project financials. Build a completely linked valuation model. - Whether you are doing DCF, or Relative Valuation - it is good to get a sense of how projected financials would look like. - The Balance sheet should link completely and the model should be dynamic. The model is NOT COMPLETE without this. - If you change assumptions - it should flow cleanly and the Balance Sheet should remain balanced ✅ Valuation - This comes last. Choose the appropriate method - FCFE, FCFF, Relative Valuation, SOTP. If not sure, try more than one method - Focus on the business. You can do a sensitivity on the discount rate, but it is usually difficult to do that on the business. - It is ok to be uncertain about the final price you get. But you need to know the relationship between business parameters like volume / pricing / costs and the valuation Learning Valuation Modeling is a process. Key is to keep practising and reading on the business. Try this the next time you are building a valuation model. ----- I help people build a #career in #valuation and #investmentbanking through my writing and courses. Follow me (Peeyush Chitlangia, CFA) to stay tuned for future posts.

Yesterday, Figma filed its beautifully designed S-1. It reveals a product-led growth (PLG) business with a remarkable trajectory. Figma’s collaborative design tool platform disrupted the design market long-dominated by Adobe. Here’s how the two companies stack up on key metrics for their most recent fiscal year [see attached image]: Figma is about 3% the size of Adobe but growing 4x faster. The gross margins are identical. Figma’s 132% Net Dollar Retention is top decile. The data also shows Figma’s Research & Development spend nearly equals Sales & Marketing spend. This is the PLG model at its best. Figma’s product is its primary marketing engine. Its collaborative nature fosters viral, bottoms-up adoption, leading to a best-in-class sales efficiency of 1.0. For every dollar spent on sales & marketing in 2023, Figma generated a dollar of new gross profit in 2024. Adobe’s blended bottoms-up & sales-led model yields a more typical 0.39. The S-1 also highlights risks. The most significant is competition from AI products. While Figma is investing heavily in AI, the technology lowers the barrier for new entrants. Figma’s defense is its expanding platform—with products like FigJam, Dev Mode, & now Slides, Sites, & Make. These new product categories have driven many PLG AI software companies to tens & hundreds of millions in ARR in record time. Given its high growth & unique business model, how should the market value Figma? We can use a linear regression based on public SaaS companies to predict its forward revenue multiple. The model shows a modest correlation between revenue growth & valuation multiples (R² = 0.23). Figma, with its 48% growth, would be the fastest-growing software company in this cohort setting aside NVIDIA. A compelling case can be made that Figma should command a higher-than-predicted valuation. Its combination of hyper-growth, best-in-class sales efficiency, & a passionate, self-propagating user base is rare. Applying our model’s predicted 19.9x multiple to estimate forward revenue yields an estimated IPO valuation of approximately $21B 2 - a premium to the $20B Adobe offered for the company in 2022. The S-1 tells the story of a category-defining company that built a collaborative design product, developed a phenomenal PLG motion, & is pushing actively into AI. The $1.0 billion termination fee from Adobe was received in December 2023 and recorded as “Other income, net” in Fiscal Year 2024 (ending January 31, 2024). The large stock-based compensation charge of nearly $900 million is related to an employee tender offer in May 2024. Both of these are removed in the non-GAAP data cited above. By taking Figma’s 48.3% trailing twelve-month growth rate & discounting it by 15% (to account for a natural growth slowdown), the model produces a forward growth estimate of 41.1%. This would imply forward revenue of about $1.1b.

How can Europe build a #digital future that embraces #innovation, competitiveness, and democratic values alike? Today's #sundAIreads is "The European Way: A Blueprint for Reclaiming Our Digital Future," a paper recently published by a long list of luminaries, including Kai Zenner, Philipp Hacker, Sebastian Hallensleben, Dr. Till Klein, Prof. Dr. Rolf Schwartmann, Björn Ommer, as well as ada's co-founders Dr. Miriam Meckel and Dr. Léa Steinacker. In the paper, the authors offer both an overarching vision and six concrete policy proposals for how the EU can reclaim its leadership in innovation and #technology. ➡️ What is currently holding Europe back? While the authors admire the EU's efforts toward ensuring that emerging technologies are governed by democratic principles, they lament that these efforts have not been streamlined and strategic enough to achieve autonomy in the digital sphere. ➡️ How can these shortcomings be addressed? The authors propose six foundational principles to address these shortcomings: 1️⃣ Principled governance: Defend democratic principles and fair competition. 2️⃣ Strategic resilience: Reduce critical dependencies on non-EU software, hardware, and infrastructure. 3️⃣ Interoperability: Embrace open standards and solutions to streamline digital services and facilitate interoperability. 4️⃣ Sustainability: Invest in eco-friendly and energy-efficient solutions. 5️⃣ Trustworthiness: Ensure digital products align with European values. 6️⃣ Decentralized economy: Protect the diversity of the digital ecosystem, paying particular heed to the needs of EU SMEs. ➡️ What concrete steps can Europe take to reclaim its digital future? The authors propose the following six priority reforms that can help pave the way toward a more digital and sustainable future: 1️⃣ Invest in a sovereign European tech stack from physical infrastructure to platforms and applications. 2️⃣ Continue expanding the digital single market, including a more unified approach to banking and finance, procurement, and competition. 3️⃣ Become a more assertive player in digital governance by investing in strategic international partnerships. 4️⃣ Reduce the regulatory burden by streamlining policymaking and assiduously adhering to principles of good governance. 5️⃣ Align its digital and sustainability agendas to reduce critical dependencies and drive economic competitiveness. 6️⃣ Increase access to critical skills and talent by facilitating high-skilled immigration, simplifying cross-border working arrangements, and promoting digital literacy. The paper conveys a sense of urgency appropriate to the challenges at hand: "The time for half-measures has passed. The world has become a tougher place. It's time for Europe to toughen up, too." But the authors also conclude on a note of optimism: "If we act with courage and purpose, the digital EU we dream of can become the digital EU we deliver." The full paper can be downloaded here: https://bit.ly/4jiqoRc.

What happens when EV/Revenue is the only available multiple? Sometimes, a company has no EBITDA. Sometimes, it has no profits. But it still gets valued. In these cases, analysts turn to EV/Revenue. Here is what you need to keep in mind: 1) Often Used for Early-Stage or High-Growth Companies - Startups, tech firms, and biotech companies may have fast-growing revenue but negative earnings. - EV/Revenue becomes the only meaningful multiple available. 2) Assumes Future Profitability - Using revenue as a proxy crudely assumes that margins will scale later. - You are not valuing what the company earns today, but what it could earn tomorrow. 3) Danger of Overpaying Without Margin Context - Two companies with the same revenue can deserve very different valuations. - Without understanding future margins, EV/Revenue can be highly misleading. 4) Sector Benchmarks Become Crucial - EV/Revenue must be compared with similar business models. - A 10x multiple might be expensive in retail but standard in SaaS. 5) Requires Cross-Check with Other Indicators - If EV/Revenue is all you have, support it with user growth, unit economics, or margin expansion forecasts. - Revenue alone cannot tell the full story. EV/Revenue is a last-resort multiple. Use it carefully. It works only when combined with deep judgement, sector understanding, and future expectations. Follow Pratik for Investment Banking Careers and Education