How Is A Company Valuated On Shark Tank India? Understanding Equity and Valuation for Entrepreneurs
📖 Learning
People in India have been busy looking for spice and reasons to gossip in reality shows. For years, the audience celebrated drama, comedy, fights, and sometimes a few melodies. Shark Tank changed it all.
Introducing Shark Tank to the Indian audience was a blessing, not just for the viewers but even for the producers. Businesses in India now have a better platform and chance to showcase their project and get the best investment.
However, pleasing the investors on Shark Tank India isn't easy. It includes various challenges and a lot of many processes, such as business valuation and a few more.
Here, we will go through a detailed study of calculating the valuation of a business or a company in Shark Tank India.
Shark Tank India
What to Know Before Learning About Calculating Company Valuation on Shark Tank India?
Calculating the Valuation of a Company in Shark Tank India
Shark Tank India
First things first, What is Shark Tank India? It is a reality show focused on businesses, where entrepreneurs present their projects, business ideas, products, etc. to the investors. If satisfied, the investors, also known as 'Sharks' help contestants on the show with a fund.
In return, these Sharks demand a particular stake in the business. This can vary from percentage of ownership and profit share.
This reality show even helps the entrepreneurs, persuading Sharks, to have access to the investor's experience, suppliers as well as their network.
Do note that on this show, the Sharks are some of the country’s best and most successful businessmen and women.
Damini Bhandary
What to Know Before Learning About Calculating Company Valuation on Shark Tank India?
Before we move on to the segment we all are here for, it is important to know a few terms that are usually referred to in the show.
Valuation
Valuation is the total value of the company after the funding round has been closed. It is based on the amount that has been raised against the equity shares.
Ask
It is the offer that the entrepreneurs are asking in their pitch. These entrepreneurs usually ask for an amount for specific equity to value their company to a valuation after the fundraising round.
Offer or Counter Offer
Offer or counter offer are basically the negotiations between Sharks (investors) and entrepreneurs. The stage comes after the entrepreneurs have pitched the Ask.
Counter Offer usually comes if the investor thinks that the valuation of the business should be less than what has been asked. Similarly, a Counter Offer is also something where the entrepreneur believes that the valuation should be greater than the offer presented by the investor.
Equity Share
It is the percentage of the business or company owned by the investor or shareholders.
Calculating the Valuation of a Company in Shark Tank India
There are four rounds of valuation used by entrepreneurs for their companies. These four methods include Revenue Multiple, Future Market Evaluation, Earnings Multiple, and Intangibles of Valuation.
Let’s understand the process more elaborately.
Revenue Multiple
In this method, if the company is valued at INR 10 lakhs in sales, the Sharks (investors) would ask about the annual sales from the previous year. If the entrepreneur states that amount to be INR 2,50,000, it means that the company would take around four years to reach the sales value that has been quoted by the entrepreneur.
In a scenario where the entrepreneur states the sale from the previous year to be INR 75,000, the investors will question the value of INR 10 lakhs.
On the other side, if the company has landed in a sales agreement with a client to sell its product worth INR 5 lakhs the valuation would become more appealing to the Sharks, looking at the sale forecast.
Earnings Multiple
The companies or businesses coming on the reality show Shark Tank India are not publicly traded and hence they do not have the equity share or published earning multiples that can be studied by the investors.
However, the Sharks on the show can look at the company’s profit, and then compare it to the company’s valuation from sales revenue. This is how the Sharks can derive an earning multiple.
Future Market Evaluation
The Future Market Evaluation can be calculated in the exact way the revenue and the earnings multiples are done. Here, the only drawback would be that the numbers are forecasts and their potential inaccuracy.
The Sharks would be asking the entrepreneur about their forecasts for sales and profits in the coming three years. These sharks will then compare the stated numbers by the entrepreneur to the other existing businesses in the same industry.
Intangibles of Valuation
Well, it's a reality show, which means it feels incomplete to not include some drama, right? So this method is solely present in Shark Tank India for excitement, some tears, and emotions.
Intangibles of Valuation is one aspect of the producers that has made the show this popular.
Here, the Sharks don't consider the number and monetary value of the company. They simply look at the intangible aspects such as the story of the entrepreneur, dedication, the urge to grow, social responsibility, and more.
Although the numbers are important while investing in a business, these aspects too play a major role in the exercise. Another point that is considered in this method is a brand name in the local area. This is important as the business might have set itself up as a brand synonymous with quality.
Similarly, the experience of the entrepreneur and access to retail outlets for selling products are some other points considered in the ‘Intangibles of Valuation’ method.
Damini Bhandary
Conclusion
Shark Tank India has introduced the Indian audience to brilliant entrepreneurs coming forth with extravagant ideas. Not just that, but now you know the many names in the business world who had struggled and eventually became successful to be on the panel of Sharks on this newly welcomed concept amongst other reality shows.
Valuation of a business is what Shark Tank is famous for. The methods and the rigorous challenges that are studied and considered might have even helped other entrepreneurs in the country.
Even if not in Shark Tank India, Indian entrepreneurs now might have an idea of how to prepare a perfect pitch and have their investors impressed in real life.
FAQs
What steps can entrepreneurs take to prepare themselves for their appearance on Shark Tank India?
To get ready for Shark Tank India, entrepreneurs should engage in meticulous market research, craft a compelling pitch deck, hone their presentation skills through practice, and foresee and address potential questions and objections from the sharks.
What is the Valuation of a company?
Valuation is the total value of the company after the funding round has been closed. It is based on the amount that has been raised against the equity shares.
Who are judges in Shark Tank India 3?
The panel of season 3 includes – Varun Dua (Acko), Amit Jain (CarDekho), Deepinder Goyal (Zomato), Namita Thapar(Emcure Pharmaceuticals), Peyush Bansal (Lenskart), Ritesh Agarwal (OYO Rooms), Anupam Mittal (Shaadi.com – People Group), Aman Gupta (boAt), Azhar Iqubal, (Inshorts), Radhika Gupta, (Edelweiss Mutual Fund), Ronnie Screwvala (UpGrad), and Vineeta Singh (SUGAR Cosmetics).
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