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How the startup companies are having large/massive valuation, even when they are in loss?

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The valuation and the losses of a company or a start-up are the two important aspects of a company which are headed in different direction.

In today’s era, companies are having high valuation or in other words ‘ over-valued valuation ’, even when they are in great loss .

The reasons is:-

    °) EARLY PHASE OF STARTUPS

In the early phase all the start-ups are in loss only. This is due to surviving in the competitive business world.

In this phase of the start-up, the company is not having any asset, on which their valuation can be calculated. So, the investor uses his own  model of valuation calculation i.e.

5X Investment model

In this model the investor calculates valuation by multiplying 5 with the amount of money the start-up founder’s asked in exchange of 20% stakes of the company.

Eg:-

Suppose a start-up ask for an investment of Rs. 1cr. In exchange of 20% of the stake of the company then, then investor will provide the start-up, the amount of Rs. 1cr. And will take 20% of the stakes which makes the total valuation of the company of Rs. 5*1 cr.= 5cr.

So, the company which was in lass is now highly profitable as they are valued of Rs 5cr. Even when they are having loss in their initial phase of the start-up

 

     °) STABLE/LAST PHASE OF STARTUPS

In the last phase, the startups have compiled a large amount of loss that, they cannot overcome over it. But at this moment, they have become so big and giant, that they are still surviving in the market.

This is due to the valuation which consist of sum of all their assets like lands/properties , stakes , brand value , revenue , market acquisition etc.

Due to this reason they are highly valuated, even after registering a big amount of loss every year.

Eg:-

Flipkart is an e-commerce giant, whose valuation is 20 Billion US Dollors and they are registering a loss around Rs. 4000 crores.

Amazon India is also an e-commerce giant, whose valuation is 16 Billion US Dollors and they are registering a loss around Rs. 4500-5000 crores

 

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