How Do You Value a Startup With No Past and an Aspirational Future?
A few months ago, a founder walked into our office. They had just begun generating revenue (Rs 10 lakhs a month) from a B2B product. There was an aspirational pitch deck, a spreadsheet, a whiteboard full of assumptions, and a quiet confidence in the problem they were solving.
We listened, challenged, debated, and then made them an offer. Six months later, their revenue is now Rs.2 Cr. a month in advanced talks to raise further capital (at a significantly higher valuation).
So how did we know?
We didn’t. Not exactly. But we did have a method. And more importantly, a mindset.
Unlike public markets where a stock has a ticker, a trading volume, and a visible price, startup valuations are created behind closed doors. They’re influenced by the stage of the company, the market it operates in, investor appetite, and most importantly the potential for exponential growth.
As Warren Buffett once said, “Price is what you pay, value is what you get.”
In startup investing, discovering that value requires a different lens.
Let’s break it down with the example below.
- Begin with Understanding, Not Numbers: We first understood the business what pain point it solves, how urgently the market needs it, and why this founder could crack it. There were early signs of product-market fit (reflected in consumer due diligence), high engagement from pilot users (reflected in customer pipeline), and clear feedback loops.
- Project the Future, Conservatively: We worked with them to project revenue and costs over five years. The goal wasn’t accuracy, it was logic. How big could this get if everything went right? And in case it did not? We referenced market reports, studied similar companies globally, and calibrated based on their vision and execution capacity.
The process is enhanced by a probability matrix, 30% chance of 100 Cr. revenue while 5% chance the business does not survive, the weight adjusted revenue is the actual revenue used for the upcoming steps. - Estimate the Exit Value: Assuming success, what might this company be worth in five years? Terminal or final valuation can be derived via various methods, the most relevant ones for startups at this stage are average Revenue, EBIDTA and PAT multiples of similar companies over stable years- primarily from listed counterparts as they are closer to reality by influence of adequate demand and supply.
Maybe Rs.250 crore. Maybe more. But we kept it conservative no unicorn fantasies. - Discount It Back to Today: The “Time Value of Money Principle” determines the adequate price to be paid today. Using a 30–40% discount rate (IRR expectation from investment), and factoring in expected dilution through follow-on rounds (20% on average), we arrived at a present value. Anything below this target entry valuation is beneficial.
- Adjust for Deal Realities: We ran multiple sensitivity scenarios: What if the founder raises slower? What if competition intensifies? Each assumption is stress-tested through diligence and inculcated in relevant matrices like revenue growth rate, marketing spends, contingencies, capex requirements market checks, founder interviews, expert inputs.
Valuing startups isn’t like valuing an institution. There’s no EBITDA multiple you can rely on. You’re valuing vision, talent, timing, and traction sometimes with little data.
But that doesn’t mean it’s a guess. It just means the process is more complex and qualitative.
Peter Thiel once asked:
“What important truth do very few people agree with you on?”
Founders who can answer that well are often building something truly disruptive. Investors who can see the merit before the numbers show it tend to benefit the most.
At Auxano, we look to curate investments and enter at fair valuations. Correct valuations help us hedge the unpredictability of the future and that comes with experience to frame the possibilities, quantify the risks, and bet on the right people.
In a world where value is hidden under uncertainty, being able to estimate well is more important than knowing exactly.
If you’re thinking about investing in startups, here’s the key question to ask:
“If this works, how big could it get and what will my share of that be?”
Everything else flows from that.
Author
Kanuj Jadwani
