Internet Startup Valuation : The ‘Desi Touch’

Arriving at the valuation of an internet startup is considered as an art, which is perhaps the best mask for the cluelessness of an entrepreneur and the generalization done by investors. This labyrinth is a byproduct of varied subjectivity with a large focus on the qualitative rather than quantitative valuation methods like P/E comparable or discounted cash flow methods. The limited data available on comparable companies and industry benchmarks has only contributed towards the complexity. There also exists a significant amount of survivorship bias, which effectively ignores the results of Internet start-ups, which get shutdown.
This problem gets further accentuated given the nascency of venture capital (VC) in India.

The off-shoot of this valuation mismatch  has been the limited number of investments in seed stage and early stage ventures. Attributing the lack of pathbreaking products like Google, YouTube and Twitter from Indian
entrepreneurs due to lack of creativity, would be a huge misnomer. The product development support for such ideas is missing from the Angel and VC fraternity of India. Thus, the divide that has been created, is because the risks of - venture capitalists not aligned with the valuation and capital expectations, of Indian entrepreneurs, who use their silicon valley counterparts as a benchmark.