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The Science behind Soaring Start-up Valuations with Marginal Revenue

Blog: NASSCOM Official Blog

The Science behind Soaring Start-up Valuations with Marginal Revenue

Nowadays start-ups have been measured by their valuations. Though there are many other parameters valuation is one such parameter that is a popular way to judge the capability and success of the company. Frankly, the math behind this valuation is quite tedious but it’s the gist of the performance parameters. Every time a start-up raises funding, a valuation number comes up which rates the current status of that firm. In India, we have ~40 start-ups that have been valued at over $1 billion and there are many inline which are close to that mark.

But few eyebrows have been raised recently on the logic behind these valuation calculations. The question is why the start-ups which are struggling to turn profitable or even not to generate any revenue have been valued so high. Usually, we measure the success of the company by its revenue and profit generation but that case is not valid for start-ups. Is there a science behind it or something else?

Frankly, it’s not that simple to answer but yes everything has some logic and even this also has some. I think the credit of this indifferent valuation calculation can be given to the following parameters:




You might be wondering, why we haven’t talked about the parameters like forward revenue multiples, price to earnings ratios etc. Yes, they are very much important but the way the market is reacting, these factors have been given less weightage compared to the frenzies which are driving this market.

Irrespective of the factors we discussed above, the main focal point of all this discussion is the “Trust” that the stakeholders have in the Indian start-up ecosystem and the “Potential” of Indian entrepreneurs to run their businesses.

The post The Science behind Soaring Start-up Valuations with Marginal Revenue appeared first on NASSCOM Community |The Official Community of Indian IT Industry.

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