APPENDIX C: CALCULATOR METHODOLOGIES¶

C.1 Overview¶

This appendix provides step-by-step methodologies for five essential financial calculators that every founder needs to understand and use during fundraising. Each calculator includes detailed formulas (in Excel/Google Sheets syntax), worked examples with realistic numbers in rupees, and practical implementation guidance.

Purpose¶

These calculators help founders: - Model ownership dilution across multiple funding rounds - Understand liquidation payouts in different exit scenarios - Calculate anti-dilution impact in down rounds - Build integrated financial projections for fundraising - Value their company using multiple methodologies

How to Use This Appendix¶

Each calculator section includes: 1. Purpose & When to Use - Understand the context 2. Inputs Required - What data you need to gather 3. Step-by-Step Process - Detailed calculation methodology 4. Excel/Sheets Formulas - Copy-paste ready formulas 5. Worked Example - Complete calculation with realistic numbers 6. Common Mistakes - What to avoid 7. Indian Context - Regulatory considerations specific to India

Cross-References¶

This appendix supports concepts covered in: - Chapter 2: Valuation Fundamentals - Valuation models - Chapter 7: Term Sheet Analysis - Liquidation preferences and anti-dilution - Chapter 19: Multi-Stage Fundraising - Cap table evolution - Chapter 21: Exit Planning - Waterfall calculations

Important Disclaimers¶

⚠️ These calculators are for educational purposes only. Always: - Verify all assumptions with your finance team or advisors - Have your CA/accountant review tax calculations - Consult legal counsel before finalizing term sheets - Use professional cap table software (Carta, Pulley) for actual equity management - Ensure compliance with current FEMA, RBI, and Companies Act regulations

1. Cap Table Dilution Calculator¶

Purpose & When to Use¶

The cap table dilution calculator tracks how ownership percentages change as you raise new funding rounds. Use this calculator: - Before accepting any term sheet (to understand dilution impact) - When planning multi-round fundraising strategy - To model option pool expansion requirements - When explaining dilution to co-founders and early employees - To project founder ownership at exit

Inputs Required¶

Current Cap Table: - Current shareholders and their share counts - Current option pool size (allocated and unallocated) - Current company valuation (if applicable)

New Round Terms: - Investment amount (₹) - Pre-money or post-money valuation (₹) - New investor target ownership percentage - Option pool expansion requirement (%, pre-money or post-money) - Security type (common, preferred, CCPS)

Step-by-Step Calculation Process¶

STEP 1: Handle Option Pool (if applicable)

If expanding or creating option pool on a pre-money basis:

Target Final Pool % = e.g., 15%
Target Investor % = e.g., 20%
Target Founder % = 100% - Pool % - Investor % = 65%

Founder % after pool (before investment) = Target Founder % / (1 - Investor %)
                                          = 65% / 80% = 81.25%

Pool Shares Needed = (Current Shares × (1 - Founder %)) / Founder %
                   = (Current Shares × 18.75%) / 81.25%

New Pre-Money Shares = Current Shares + Pool Shares

STEP 2: Calculate Investment Terms

Pre-Money Valuation = Given (₹)
Pre-Money Shares = Current shares + Pool shares (if pre-money)
Price Per Share = Pre-Money Valuation / Pre-Money Shares

New Shares Issued = Investment Amount / Price Per Share

Post-Money Shares = Pre-Money Shares + New Shares Issued
Post-Money Valuation = Pre-Money Valuation + Investment Amount

STEP 3: Calculate New Ownership Percentages

For each stakeholder:
New Ownership % = (Stakeholder Shares / Post-Money Shares) × 100

Dilution % = (Old Ownership % - New Ownership %) / Old Ownership % × 100

STEP 4: Verify Fully Diluted Calculation

Fully Diluted Shares = Common Stock +
                       Preferred Stock (as-converted) +
                       Outstanding Options +
                       Unallocated Pool +
                       Warrants

Fully Diluted Ownership % = Shareholder Shares / Fully Diluted Shares

Excel/Sheets Formulas¶

Basic Structure (assumes data in columns A-F):

// Column headers:
A: Shareholder Name
B: Security Type
C: Shares Held
D: Ownership %
E: Investment Amount
F: Price Per Share

// Row 15: TOTAL

// Formula for Ownership % (cell D2):
=C2/$C$15

// Formula for Total Shares (cell C15):
=SUM(C2:C14)

// New shares for investment (cell C10):
=E10/F10

// Dilution calculator (create separate section):
Previous Ownership: [Reference to previous round]
Current Ownership: =D2
Dilution %: =(Previous-Current)/Previous*100

Pre-Money Pool Calculation:

// Named ranges make this clearer
CurrentShares = 10000000
TargetFounderPct = 0.65
TargetInvestorPct = 0.20
TargetPoolPct = 0.15

// Founder % before investment
FounderPreInvPct = TargetFounderPct / (1 - TargetInvestorPct)

// Pool shares needed
PoolShares = (CurrentShares * (1 - FounderPreInvPct)) / FounderPreInvPct

// Pre-money shares
PreMoneyShares = CurrentShares + PoolShares

// Price per share
PricePerShare = PreMoneyValuation / PreMoneyShares

// Investor shares
InvestorShares = InvestmentAmount / PricePerShare

// Post-money total
PostMoneyShares = PreMoneyShares + InvestorShares

Post-Money Calculation:

// Calculate investor shares first (no pool)
InvestorShares = (CurrentShares * TargetInvestorPct) / (1 - TargetInvestorPct)
PostMoneyNoPool = CurrentShares + InvestorShares

// Then add pool
PoolShares = (PostMoneyNoPool * TargetPoolPct) / (1 - TargetPoolPct)
FinalTotal = PostMoneyNoPool + PoolShares

Worked Example: Series A with Pre-Money Pool¶

Company: TechIndia Solutions Pvt. Ltd.

Before Round: - Founders (2 co-founders): 10,000,000 shares (100%) - No existing option pool - Current valuation: Not applicable (pre-revenue)

Series A Terms: - Investment: ₹5,00,00,000 (₹5 crore) - Pre-Money Valuation: ₹20,00,00,000 (₹20 crore) - Investor wants: 20% post-money ownership - Option pool: Create 15% pool (pre-money treatment) - Security: CCPS (Compulsorily Convertible Preference Shares)

CALCULATION:

Step 1: Create 15% Option Pool (Pre-Money)

Target final ownership: - Investors: 20% - Pool: 15% - Founders: 65%

Founders should be 81.25% after pool creation (before investment):

Founders target = 65% ÷ (1 - 20%) = 81.25%
Pool target = 15% ÷ (1 - 20%) = 18.75%

Calculate pool shares:

Pool Shares = (10,000,000 × 18.75%) ÷ 81.25%
           = 1,875,000 ÷ 81.25%
           = 2,307,692 shares

Shares after pool = 10,000,000 + 2,307,692 = 12,307,692

Verify: - Founders: 10,000,000 ÷ 12,307,692 = 81.25% ✓ - Pool: 2,307,692 ÷ 12,307,692 = 18.75% ✓

Step 2: Calculate Series A Investment

Pre-Money Shares = 12,307,692
Pre-Money Valuation = ₹20,00,00,000
Price Per Share = ₹20,00,00,000 ÷ 12,307,692 = ₹162.50

New Shares for ₹5 crore = ₹5,00,00,000 ÷ ₹162.50 = 3,076,923 shares

Post-Money Shares = 12,307,692 + 3,076,923 = 15,384,615
Post-Money Valuation = ₹20,00,00,000 + ₹5,00,00,000 = ₹25,00,00,000

Step 3: Final Cap Table

Key Insights: - Founders diluted from 100% to 65% in single round (35% dilution) - Despite ₹20 crore pre-money, founders' effective pre-money value is only ₹16.25 crore - The ₹3.75 crore difference is the "option pool shuffle" impact - Price per share (₹162.50) applies to both investor and future option grants

Common Mistakes to Avoid¶

❌ Mistake 1: Pre vs Post-Money Confusion - Always clarify whether valuation is pre-money or post-money - Post-money = Pre-money + Investment amount - Investor % on post-money basis: Shares ÷ Post-Money Shares

❌ Mistake 2: Option Pool Treatment - Pre-money pool dilutes founders MORE than post-money pool - Always negotiate post-money pool or compensate with higher pre-money valuation - The difference can be 5-8 percentage points of ownership

❌ Mistake 3: Forgetting Fully Diluted - Always include unallocated option pool in fully diluted share count - Don't count convertible notes/SAFEs until they convert - Anti-dilution adjustments create additional shares

❌ Mistake 4: Multiple Round Modeling - Each round dilutes ALL previous shareholders proportionally - Don't forget to dilute previous investors too - Anti-dilution provisions change these calculations (see Section 3)

Indian Context: Regulatory Considerations¶

FEMA Compliance: - Foreign investors (including NRIs in some cases) subject to FEMA pricing guidelines - RBI requires valuation within ±5% of DCF or comparable company valuation - Document valuation methodology for RBI reporting (Form FC-GPR)

Companies Act 2013: - CCPS must convert within 20 years (typical term sheets specify 7-10 years or at exit) - Private companies can issue different classes of shares (Section 43) - Special resolution required for preference share issuance

Cap Table Maintenance: - Update Form PAS-3 within 30 days of allotment - File returns with RoC showing updated shareholding - Maintain accurate register of members (Section 88)

Tax Implications: - Angel tax (Section 56(2)(viib)) applies if shares issued above FMV without exemption - DPIIT recognition provides angel tax exemption for recognized startups - Capital gains tax implications for founders on eventual exit

2. Liquidation Preference Waterfall Calculator¶

Purpose & When to Use¶

The liquidation waterfall calculator determines how exit proceeds are distributed among different shareholder classes based on their liquidation preferences and participation rights. Use this calculator: - Before accepting any term sheet with liquidation preferences - To understand minimum exit value needed for founders to receive proceeds - When modeling different exit scenarios for strategic planning - To explain to employees why their equity value depends on exit price - To evaluate trade-offs between valuation and liquidation terms

Inputs Required¶

For Each Investment Round: - Investment amount (₹) - Shares issued - Liquidation preference multiple (1x, 2x, 3x) - Participation type: Non-participating, Participating (uncapped), Participating (capped at Nx) - Seniority structure: Standard seniority or pari passu

Cap Table: - Common stock shares (founders, employees) - Preferred stock shares by series - Total fully diluted shares

Exit Scenario: - Exit value / acquisition price (₹)

Step-by-Step Calculation Process¶

STEP 1: Rank Preference Stack by Seniority

Typical order (most recent first):

1. Series C Preferred
2. Series B Preferred
3. Series A Preferred
4. Seed Preferred
5. Common Stock (last)

STEP 2: Calculate Each Series' Liquidation Preference

For each series, starting with most senior:

Preference Amount = Investment Amount × Preference Multiple

IF (Remaining Proceeds ≥ Preference Amount):
    Series receives Preference Amount
    Remaining = Remaining - Preference Amount
ELSE:
    Series receives Remaining Proceeds
    Remaining = 0
    STOP (no more to distribute)

STEP 3: Check Participation Rights

For series with participating preferred:

IF (Remaining Proceeds > 0):
    Pro-Rata Share % = Series Shares ÷ Total Shares Remaining
    Participation Amount = Remaining Proceeds × Pro-Rata Share %

    IF (Cap exists):
        Total Payout = MIN(Preference + Participation, Cap Amount)
        IF (Total Payout hit cap):
            Check if converting to common gives more
    ELSE:
        Total Payout = Preference + Participation

STEP 4: Calculate Common Stock Distribution

After all preferences and participation paid:

IF (Remaining Proceeds > 0):
    Common Stock Total = Remaining Proceeds
    Per-Share Value = Remaining Proceeds ÷ Common Shares
    Each Stakeholder = Their Common Shares × Per-Share Value
ELSE:
    Common Stock receives ₹0

STEP 5: Check Conversion Alternative

For each preferred series, calculate if converting to common gives better outcome:

Pro-Rata as Common = Exit Value × (Series Shares ÷ Total Shares)

IF (Pro-Rata as Common > Preference Payout):
    Investor should convert
    Recalculate waterfall with this series as common

Excel/Sheets Formulas¶

Basic Waterfall Structure:

// Input section (cells B1:B10)
ExitValue = 50000000  // in rupees
SeriesB_Investment = 15000000
SeriesB_Preference = 1  // 1x
SeriesB_Participating = FALSE
SeriesB_Shares = 4285714

SeriesA_Investment = 5000000
SeriesA_Preference = 1
SeriesA_Participating = TRUE
SeriesA_Cap = 3  // 3x cap
SeriesA_Shares = 3333333

Seed_Investment = 1000000
Seed_Shares = 2000000
Common_Shares = 10000000

TotalShares = SeriesB_Shares + SeriesA_Shares + Seed_Shares + Common_Shares

// Waterfall calculations
// Step 1: Series B Preference
SeriesB_PreferenceAmt = SeriesB_Investment * SeriesB_Preference
Remaining_After_B = ExitValue - SeriesB_PreferenceAmt

// Step 2: Series A Preference
SeriesA_PreferenceAmt = SeriesA_Investment * SeriesA_Preference
Remaining_After_A_Pref = MAX(0, Remaining_After_B - SeriesA_PreferenceAmt)

// Step 3: Series A Participation (if applicable)
IF(SeriesA_Participating = TRUE,
    // Calculate participation
    ParticipationPool = SeriesA_Shares + Seed_Shares + Common_Shares
    SeriesA_ProRata = SeriesA_Shares / ParticipationPool
    SeriesA_Participation = Remaining_After_A_Pref * SeriesA_ProRata

    // Check cap
    SeriesA_Uncapped = SeriesA_PreferenceAmt + SeriesA_Participation
    SeriesA_CapAmt = SeriesA_Investment * SeriesA_Cap
    SeriesA_Total = MIN(SeriesA_Uncapped, SeriesA_CapAmt)

    // Update remaining
    Remaining_After_A = Remaining_After_A_Pref - SeriesA_Participation
,
    SeriesA_Total = SeriesA_PreferenceAmt
    Remaining_After_A = Remaining_After_A_Pref
)

// Step 4: Remaining to Seed + Common
Remaining_Final = MAX(0, Remaining_After_A)
Seed_ProRata = Seed_Shares / (Seed_Shares + Common_Shares)
Seed_Payout = Remaining_Final * Seed_ProRata
Common_Payout = Remaining_Final * (1 - Seed_ProRata)

Conversion Decision Logic:

// For each series, check if conversion is better
SeriesB_AsCommon = ExitValue * (SeriesB_Shares / TotalShares)
SeriesB_ShouldConvert = IF(SeriesB_AsCommon > SeriesB_Total, "CONVERT", "TAKE PREFERENCE")

SeriesA_AsCommon = ExitValue * (SeriesA_Shares / TotalShares)
SeriesA_ShouldConvert = IF(SeriesA_AsCommon > SeriesA_Total, "CONVERT", "TAKE PREFERENCE")

Scenario Analysis Table:

// Create data table with exit values in rows
ExitValues = {10000000, 20000000, 30000000, 50000000, 75000000, 100000000, 200000000}

// Use Data Table feature:
// Row input cell: ExitValue
// Table shows distributions for each stakeholder at each exit value

Worked Example: 3 Exit Scenarios¶

Company: FinTech Innovations Pvt. Ltd.

Funding History:

Seed Round (2 years ago): - Investment: ₹1,00,00,000 (₹1 crore) - Shares: 2,000,000 preferred - Terms: 1x non-participating - Post-money: ₹5,00,00,000

Series A (1 year ago): - Investment: ₹5,00,00,000 (₹5 crore) - Shares: 3,333,333 preferred - Terms: 1x participating with 3x cap - Post-money: ₹25,00,00,000

Series B (Recent): - Investment: ₹15,00,00,000 (₹15 crore) - Shares: 4,285,714 preferred - Terms: 1x non-participating - Post-money: ₹75,00,00,000

Common Stock: - Founders + employees: 10,000,000 shares

Total Fully Diluted: 19,619,047 shares

Seniority: Series B > Series A > Seed (standard)

SCENARIO 1: ₹20 Crore Exit (Down Exit / Acqui-hire)¶

Step 1: Series B Takes Preference

Series B Preference = ₹15,00,00,000 × 1x = ₹15,00,00,000
Remaining = ₹20,00,00,000 - ₹15,00,00,000 = ₹5,00,00,000

Step 2: Series A Takes Preference

Series A Preference = ₹5,00,00,000 × 1x = ₹5,00,00,000
Remaining = ₹5,00,00,000 - ₹5,00,00,000 = ₹0

Step 3: Nothing Left

Series A Participation = ₹0 (no proceeds left)
Seed gets = ₹0
Common gets = ₹0

Distribution:

🔴 CRITICAL INSIGHT: Founders get NOTHING despite ₹75 crore post-money valuation. This is liquidation overhang—the minimum exit value needed is ₹21 crore+ for founders to receive anything.

SCENARIO 2: ₹50 Crore Exit (Modest Success)¶

Step 1: Series B Preference

Series B takes ₹15,00,00,000
Remaining = ₹50,00,00,000 - ₹15,00,00,000 = ₹35,00,00,000

Step 2: Should Series B Convert Instead?

Series B as common = ₹50 crore × (4,285,714 ÷ 19,619,047) = ₹10,92,23,301
₹10.92 crore < ₹15 crore preference → NO, take preference

Step 3: Series A Preference

Series A preference = ₹5,00,00,000
Remaining after preference = ₹35,00,00,000 - ₹5,00,00,000 = ₹30,00,00,000

Step 4: Series A Participation

Series A participates with Seed and Common in remaining ₹30 crore:

Participating shares = 3,333,333 (Series A) + 2,000,000 (Seed) + 10,000,000 (Common)
                     = 15,333,333 shares

Series A pro-rata = 3,333,333 ÷ 15,333,333 = 21.74%
Series A participation = ₹30,00,00,000 × 21.74% = ₹6,52,17,391

Series A total (uncapped) = ₹5,00,00,000 + ₹6,52,17,391 = ₹11,52,17,391

Check cap: 3x cap = ₹5 crore × 3 = ₹15,00,00,000
₹11.52 crore < ₹15 crore → Cap not hit, Series A gets full amount

Step 5: Seed and Common Split Remainder

Remaining = ₹30,00,00,000 - ₹6,52,17,391 = ₹23,47,82,609

Seed + Common shares = 12,000,000
Seed ownership = 2,000,000 ÷ 12,000,000 = 16.67%
Seed payout = ₹23,47,82,609 × 16.67% = ₹3,91,30,435

Common ownership = 10,000,000 ÷ 12,000,000 = 83.33%
Common payout = ₹23,47,82,609 × 83.33% = ₹19,56,52,174

Should Seed convert to common?

Seed as common = ₹50 crore × (2,000,000 ÷ 19,619,047) = ₹5,09,76,771
Seed preference = ₹1,00,00,000
Seed participation = ₹3,91,30,435

₹5.10 crore > ₹1 crore preference but we already calculated participation
Seed total = ₹3,91,30,435 is best outcome (already converted effectively)

Distribution:

🟡 INSIGHT: Founders receive 39% of exit proceeds. Series A's participation significantly reduces founder share compared to pro-rata (which would give founders 51%).

SCENARIO 3: ₹100 Crore Exit (Strong Success)¶

Step 1: Check All Conversions

Series B as common = ₹100 crore × 21.84% = ₹21,84,46,603
Series B preference = ₹15,00,00,000
→ ₹21.84 crore > ₹15 crore → **CONVERT**

Series A as common = ₹100 crore × 16.99% = ₹16,99,24,814
Series A cap = ₹15,00,00,000
→ ₹16.99 crore > ₹15 crore cap → **CONVERT**

Seed as common = ₹100 crore × 10.19% = ₹10,19,51,042
Seed preference = ₹1,00,00,000
→ ₹10.20 crore > ₹1 crore → **CONVERT**

All investors convert to common stock → Pro-rata distribution

Step 2: Pro-Rata Distribution

🟢 INSIGHT: At ₹100 crore exit, everyone converts and founders get 51% of proceeds (aligned with ownership). This is why higher exits are better for founders.

Summary: Exit Value Impact on Founders¶

Liquidation Overhang Calculation:

Minimum exit for founders = Sum of all liquidation preferences
                          = ₹15 Cr + ₹5 Cr + ₹1 Cr = ₹21 Cr

At ₹21 crore exit, preferences are paid and ₹0 remains for common.
Founders need ₹21+ crore to receive ANY proceeds.

Common Mistakes to Avoid¶

❌ Mistake 1: Ignoring Participation - Participating preferred significantly reduces founder proceeds in mid-range exits - At ₹50 crore exit, participation cost founders ₹6 crore vs non-participating

❌ Mistake 2: Not Modeling Multiple Scenarios - Always model at: Liquidation preference total, 2x that amount, 5x, and 10x - Understand where conversion points occur

❌ Mistake 3: Forgetting Seniority - Later rounds get paid first in standard seniority structure - Series B gets ₹15 crore before Series A gets anything

❌ Mistake 4: Accepting High Preference Multiples - 2x or 3x non-participating preferences create massive overhang - 3x participating preferred is nearly impossible to overcome

Indian Context: CCPS Liquidation¶

CCPS Structure: - CCPS (Compulsorily Convertible Preference Shares) is the Indian equivalent of preferred stock - Liquidation preferences in CCPS governed by shareholder agreement (SHA) - Must comply with Companies Act 2013 Section 47 (preference shares)

Key Differences: - CCPS must convert within 20 years (vs perpetual preferred stock in US) - RBI/FEMA pricing guidelines apply to foreign investments in CCPS - Exit via acquisition requires RBI approval (Form FC-TRS) if foreign investor involved

Redemption vs Liquidation: - Redemption (share buyback) has different tax treatment than liquidation - Section 46 of Companies Act governs redemption terms - Capital gains tax vs dividend distribution tax considerations

3. Three-Statement Financial Model¶

Purpose & When to Use¶

The three-statement financial model integrates your Income Statement, Balance Sheet, and Cash Flow Statement to create comprehensive financial projections. Use this model: - When preparing for Series A or later fundraising (seed may need only P&L) - To demonstrate financial understanding and business maturity to investors - For internal planning and scenario analysis - To model runway and cash burn under different growth assumptions - When your company has achieved product-market fit and scaling

Model Structure Overview¶

The three statements are interconnected:

INCOME STATEMENT (P&L)
↓
Net Income flows to...
↓
BALANCE SHEET (Assets = Liabilities + Equity)
↓
Changes in balance sheet accounts flow to...
↓
CASH FLOW STATEMENT
↓
Ending cash flows back to Balance Sheet

Key Assumptions Section¶

Before building statements, define assumptions:

Revenue Assumptions: - Number of customers/users by month - Average revenue per customer (ARPU) - Customer acquisition by channel - Churn rate % - Expansion revenue %

Unit Economics: - Customer Acquisition Cost (CAC) - Lifetime Value (LTV) - LTV:CAC ratio target (3:1 or better) - Gross margin % (target 70-80% for SaaS) - Contribution margin after CAC

Operational Expenses: - Headcount by function (Eng, Sales, Marketing, Ops, G&A) - Average salary by function and level - Employee benefits and taxes (20-30% of salary in India) - Marketing spend as % of revenue or fixed budget - Infrastructure costs (AWS, cloud services) - Office, legal, accounting, other overhead

Capital Expenditures: - Equipment purchases - Software licenses (annual) - Leasehold improvements

Step-by-Step Build Instructions¶

STEP 1: Build Revenue Model (Bottoms-Up)¶

For each month:

New Customers = Marketing Leads × Conversion Rate
Churned Customers = Beginning Customers × Monthly Churn Rate
Ending Customers = Beginning Customers + New Customers - Churned Customers

Monthly Recurring Revenue (MRR) = Ending Customers × ARPU
Expansion Revenue = Existing Customers × Expansion Rate × ARPU
Total Revenue = MRR + Expansion Revenue + One-Time Revenue

Excel Formula (for Month 2, assuming Month 1 is starting point):

// Cell C10 (New Customers Month 2):
=C5*C6  // Marketing Leads * Conversion Rate

// Cell C11 (Churned Customers):
=B12*$B$3  // Previous month ending customers * churn rate

// Cell C12 (Ending Customers):
=B12+C10-C11  // Beginning + New - Churned

// Cell C15 (MRR):
=C12*$B$4  // Ending Customers * ARPU

// Cell C16 (Revenue):
=C15

STEP 2: Build Cost of Goods Sold (COGS)¶

COGS Components:
- Cloud/hosting costs (often variable with users)
- Payment processing fees (% of revenue)
- Customer support costs (may be semi-variable)
- Third-party services/APIs

COGS = (Variable COGS per Customer × Customers) + Fixed COGS

Gross Profit = Revenue - COGS
Gross Margin % = Gross Profit / Revenue

Target Gross Margins by Type: - SaaS: 70-85% - Marketplace: 20-40% (depends on take rate) - Consumer subscription: 60-75% - Hardware-enabled: 40-60%

STEP 3: Model Operating Expenses (OpEx)¶

Personnel Costs:

For each function (Engineering, Sales, Marketing, Ops, G&A):

Monthly Salary Cost = Number of Employees × Average Salary / 12
Benefits & Taxes = Salary Cost × 25% (India: PF, ESI, gratuity)
Stock-Based Compensation = ESOP expense / 48 months (4-year vesting)

Total Personnel = Salary + Benefits + Stock Comp

Other Operating Expenses:

Marketing: Ad spend + Events + Content
Sales: Travel + Tools (CRM, sales enablement)
R&D: Tools + software licenses + cloud development
G&A: Office + Legal + Accounting + Insurance

Total Operating Expenses:

OpEx = Personnel + Marketing + Sales & Marketing + R&D + G&A

EBITDA = Gross Profit - OpEx
EBIT = EBITDA - Depreciation - Amortization
Net Income = EBIT - Interest - Taxes

STEP 4: Build Balance Sheet¶

Assets:

Cash = Beginning Cash + Cash Flow (from CF statement)
Accounts Receivable = Revenue × DSO / 30
   (DSO = Days Sales Outstanding, typically 30-60 days for B2B)
Prepaid Expenses = Typically 1-2 months of rent/insurance
Fixed Assets = Beginning + CapEx - Depreciation

Total Assets = Cash + AR + Prepaid + Fixed Assets

Liabilities:

Accounts Payable = COGS × DPO / 30
   (DPO = Days Payable Outstanding, typically 30-45 days)
Accrued Expenses = Payroll + benefits not yet paid
Deferred Revenue = Prepayments from customers (common in SaaS annual plans)
Debt = Any loans or credit lines

Total Liabilities = AP + Accrued + Deferred + Debt

Equity:

Common Stock = Par value × shares (usually minimal in India)
Additional Paid-In Capital = Fundraising proceeds - par value
Retained Earnings = Beginning RE + Net Income

Total Equity = Stock + APIC + Retained Earnings

CHECK: Total Assets = Total Liabilities + Total Equity

STEP 5: Build Cash Flow Statement¶

Operating Activities:

Cash from Operations = Net Income
                     + Depreciation (non-cash expense)
                     + Amortization (non-cash expense)
                     - Increase in AR (cash tied up in receivables)
                     + Increase in AP (cash from delayed payments)
                     + Increase in Deferred Revenue (cash received upfront)
                     - Increase in Prepaid Expenses (cash paid in advance)

Investing Activities:

Cash from Investing = - Capital Expenditures (cash outflow for assets)

Financing Activities:

Cash from Financing = + Equity raised (fundraising)
                     + Debt borrowed
                     - Debt repaid
                     - Dividends paid (rare for startups)

Net Change in Cash:

Net Change = Operating CF + Investing CF + Financing CF
Ending Cash = Beginning Cash + Net Change

This ending cash flows back to the Balance Sheet

Complete Excel Template Structure¶

Sheet 1: Assumptions

Revenue Assumptions (cells B5:B15)
- Starting customers: 100
- Monthly new customer growth: 20%
- ARPU: ₹5,000
- Churn rate: 3%
- Expansion rate: 2%

Unit Economics (B20:B25)
- CAC: ₹15,000
- LTV: ₹50,000
- Gross margin target: 75%

Personnel (B30:B50)
- Engineering: 10 people @ ₹15,00,000 annual
- Sales: 5 people @ ₹10,00,000 annual
- Marketing: 3 people @ ₹12,00,000 annual
- Operations: 5 people @ ₹8,00,000 annual
- G&A: 2 people @ ₹18,00,000 annual

Sheet 2: Income Statement (P&L)

Headers in Row 5, Months in columns C through Z (24 months)

Revenue (Row 10):
=Assumptions!$B$5 * Assumptions!$B$7 * (1 + Assumptions!$B$6)^COLUMN()

COGS (Row 15):
=(1 - Assumptions!$B$23) * Revenue

Gross Profit (Row 16):
=Revenue - COGS

Operating Expenses (Rows 20-30):
=SUM(Personnel_Costs, Marketing_Spend, Other_OpEx)

EBITDA (Row 35):
=Gross_Profit - Operating_Expenses

Net Income (Row 40):
=EBITDA - Depreciation - Interest - Taxes

Sheet 3: Balance Sheet

Assets section (Rows 10-25)
Liabilities section (Rows 30-40)
Equity section (Rows 45-55)

Balance Check (Row 60):
=Total_Assets - (Total_Liabilities + Total_Equity)
// Should equal ₹0

Sheet 4: Cash Flow Statement

Operating Activities (Rows 10-20)
Investing Activities (Rows 25-30)
Financing Activities (Rows 35-40)

Net Change in Cash (Row 45):
=SUM(Operating_CF, Investing_CF, Financing_CF)

Ending Cash (Row 50):
=Beginning_Cash + Net_Change

Worked Example Summary: SaaS Startup - Month 12 Snapshot¶

Company: CloudBooks (accounting SaaS for Indian SMEs)

Revenue (Month 12):

Customers: 500 (started with 50, growing 15% MoM)
ARPU: ₹5,000/month
MRR: ₹25,00,000
ARR: ₹3,00,00,000 (₹3 crore)

Income Statement (Month 12):

Revenue:                    ₹25,00,000
COGS (25%):                 ₹6,25,000
Gross Profit (75%):         ₹18,75,000

Operating Expenses:
  Personnel:                ₹40,00,000 (25 employees)
  Marketing:                ₹10,00,000
  Other OpEx:              ₹5,00,000
  Total OpEx:              ₹55,00,000

EBITDA:                    -₹36,25,000
(Negative because investing in growth)

Net Income:                -₹36,25,000

Balance Sheet (Month 12):

Assets:
  Cash:                     ₹1,20,00,000 (runway: 3.3 months at current burn)
  Accounts Receivable:      ₹25,00,000 (30-day terms)
  Fixed Assets:            ₹10,00,000
  Total Assets:            ₹1,55,00,000

Liabilities:
  Accounts Payable:         ₹5,00,000
  Deferred Revenue:         ₹30,00,000 (annual prepayments)
  Total Liabilities:        ₹35,00,000

Equity:
  Paid-in Capital:          ₹5,00,00,000 (seed + Series A)
  Retained Earnings:       -₹3,80,00,000 (cumulative losses)
  Total Equity:            ₹1,20,00,000

Total L + E:               ₹1,55,00,000 ✓

Cash Flow Statement (Month 12):

Operating Activities:
  Net Income:              -₹36,25,000
  Add: Depreciation:        ₹50,000
  Increase in AR:          -₹2,00,000 (more receivables = cash outflow)
  Increase in Deferred:     ₹5,00,000 (annual plans paid upfront)
  Cash from Operations:    -₹32,75,000

Investing Activities:
  CapEx:                   -₹1,00,000
  Cash from Investing:     -₹1,00,000

Financing Activities:
  Equity raised:            ₹0 (no fundraising this month)
  Cash from Financing:      ₹0

Net Change in Cash:        -₹33,75,000
Beginning Cash:            ₹1,53,75,000
Ending Cash:               ₹1,20,00,000

Key Metrics: - Monthly burn: ₹33,75,000 - Runway: 3.3 months (need to raise soon!) - CAC: ₹15,000 - LTV: ₹45,000 (assuming 30% churn, 75% gross margin) - LTV:CAC: 3.0x ✓ - Magic Number: 0.65 (needs improvement; target >0.75)

Common Mistakes to Avoid¶

❌ Mistake 1: Revenue Without Reality Check - Don't model 30% MoM growth forever without justification - Use cohort analysis to validate retention assumptions - Model seasonality if your business has it

❌ Mistake 2: Forgetting Working Capital - B2B businesses have 30-90 day payment terms (impacts cash) - Deferred revenue is a LIABILITY (you owe service delivery) - Growing AR while burning cash kills startups

❌ Mistake 3: Underestimating OpEx - Benefits and taxes add 20-30% to salary cost in India - Recruiting costs money (not just HR time) - Office costs more than rent (furniture, internet, pantry, etc.)

❌ Mistake 4: Balance Sheet Doesn't Balance - Every entry needs offsetting entry (double-entry accounting) - Net income flows to retained earnings - Cash flow ending cash must match balance sheet cash

❌ Mistake 5: Ignoring Unit Economics - CAC payback period >12 months is dangerous without long runway - Negative gross margin is never okay (fix pricing or costs) - LTV:CAC <3x means you're destroying value

Indian Context: Financial Modeling Considerations¶

Revenue Recognition: - Follow Ind AS 115 (Indian Accounting Standard for revenue) - SaaS: Recognize revenue ratably over subscription period - Marketplace: Recognize only commission as revenue (not GMV)

Tax Modeling: - Corporate tax: 25% (for companies with turnover <₹400 crore) - MAT (Minimum Alternate Tax): 15% on book profit if regular tax <MAT - GST: 18% on most software services (pass-through, not P&L impact) - TDS implications: Withhold on payments to vendors

Statutory Costs: - PF (Provident Fund): 12% employer + 12% employee - ESI (Employees' State Insurance): 3.25% employer for employees earning <₹21,000/month - Gratuity provision: ~4-5% of salary - Professional tax: State-specific, ₹2,500-7,500 per employee annually

Compliance Costs: - Statutory audit: ₹50,000-₹2,00,000 annually - GST returns: Monthly filing costs - ROC filings: Annual costs - Legal and secretarial: ₹1-3 lakh annually

4. Fundraising Scenario Model¶

Purpose & When to Use¶

The fundraising scenario model helps you evaluate different funding options by modeling various combinations of investment amount and valuation. Use this model: - When you have multiple term sheet offers - To understand trade-offs between valuation and dilution - To determine optimal fundraising amount for your runway needs - When deciding between raising more at lower valuation vs less at higher valuation - To communicate options to co-founders and board

Inputs Required¶

Current State: - Current cap table (shareholders and shares) - Current option pool size and allocation - Current monthly burn rate - Current cash balance

Scenario Variables: - Investment amount options (e.g., ₹3 Cr, ₹5 Cr, ₹7 Cr) - Pre-money valuation options (e.g., ₹15 Cr, ₹20 Cr, ₹25 Cr) - Option pool expansion (%, pre-money or post-money)

Future Assumptions: - Expected next round timing (months) - Expected next round valuation (multiple of current) - Hypothetical exit valuation (for exit value analysis)

Calculation Methodology¶

For each scenario (amount × valuation combination):

STEP 1: Calculate Dilution

Price Per Share = Pre-Money Valuation / Pre-Money Shares
New Shares = Investment Amount / Price Per Share
Post-Money Shares = Pre-Money Shares + New Shares + Pool Expansion
Founder Ownership % = Founder Shares / Post-Money Shares
Dilution % = (Old % - New %) / Old %

STEP 2: Calculate Runway

Total Cash = Current Cash + Investment Amount
Runway (months) = Total Cash / Monthly Burn Rate
Runway with Growth = Iterative calculation if burn increases

STEP 3: Model Next Round Dilution

Assume next round at X months with Y% dilution
Founder ownership after next round = Current % × (1 - Next Round Dilution %)

STEP 4: Calculate Hypothetical Exit Value

At hypothetical exit (e.g., ₹100 crore):
Founder proceeds = Exit Value × Final Founder Ownership %
Investor proceeds = Calculate using liquidation waterfall
Return multiple for each stakeholder

STEP 5: Calculate Effective Cost of Capital

Effective cost = Dilution % / (Runway months / 12)
Example: 25% dilution for 18 months runway = 25% / 1.5 = 16.7% annual cost

Excel/Sheets Setup¶

Scenario Matrix Structure:

// Create 3×3 matrix (3 amounts × 3 valuations)

Investment amounts (Rows):
Row 10: ₹3,00,00,000
Row 11: ₹5,00,00,000
Row 12: ₹7,00,00,000

Valuations (Columns):
Column C: ₹15,00,00,000 pre-money
Column D: ₹20,00,00,000 pre-money
Column E: ₹25,00,00,000 pre-money

// For each cell, calculate outcome metrics

Formulas for Scenario Cell (C10 = ₹3 Cr at ₹15 Cr valuation):

// Inputs
PreMoneyVal = $E$10  // ₹15,00,00,000
InvestAmt = $C10     // ₹3,00,00,000
PreMoneyShares = $B$5  // e.g., 10,000,000
FounderShares = $B$6   // e.g., 8,000,000
CurrentCash = $B$7
MonthlyBurn = $B$8

// Calculations
PricePerShare = PreMoneyVal / PreMoneyShares
NewShares = InvestAmt / PricePerShare
PostMoneyShares = PreMoneyShares + NewShares
FounderOwnership = FounderShares / PostMoneyShares
Dilution = (($B$6/PreMoneyShares) - FounderOwnership) / ($B$6/PreMoneyShares)

Runway = (CurrentCash + InvestAmt) / MonthlyBurn

ExitValue = $B$10  // Hypothetical exit, e.g., ₹100 crore
FounderProceeds = ExitValue * FounderOwnership

EffectiveCost = Dilution / (Runway / 12)

Data Table Feature:

// Use Excel Data Table to auto-populate matrix
1. Create template calculation in one cell
2. Set up row/column inputs (amount and valuation)
3. Select matrix range
4. Data > What-If Analysis > Data Table
5. Row input cell: Investment amount
6. Column input cell: Pre-money valuation

Worked Example: Scenario Analysis¶

Company: EduTech Platform Pvt. Ltd.

Current State: - Founders: 8,000,000 shares (80%) - Angel investors: 2,000,000 shares (20%) - Total shares: 10,000,000 - Current cash: ₹50,00,000 - Monthly burn: ₹25,00,000 - Current runway: 2 months (need to raise urgently!)

Fundraising Options Being Considered: - Amount options: ₹3 Cr, ₹5 Cr, ₹7 Cr - Valuation options: ₹15 Cr, ₹20 Cr, ₹25 Cr pre-money - No option pool expansion (already have 10% pool)

Scenario Matrix: Founder Ownership %

Calculations for ₹5 Cr at ₹20 Cr (middle scenario):

Price per share = ₹20,00,00,000 / 10,000,000 = ₹200
New shares = ₹5,00,00,000 / ₹200 = 250,000 shares
Post-money shares = 10,000,000 + 250,000 = 10,250,000
Founder shares = 8,000,000
Founder ownership = 8,000,000 / 10,250,000 = 78.05%

Wait, this doesn't match the table! Let me recalculate...

Actually, with 20% held by angels:
Total shares = 10,000,000
Investment at ₹20 Cr pre-money:
New shares = ₹5 Cr / (₹20 Cr / 10M shares) = 2,500,000 shares
Post-money shares = 10,000,000 + 2,500,000 = 12,500,000
Founder ownership = 8,000,000 / 12,500,000 = 64.0%

Hmm, still not matching. Let me use correct formula:
New shares = (Pre-money shares × Investment) / Pre-money valuation
           = (10,000,000 × ₹5,00,00,000) / ₹20,00,00,000
           = 2,500,000 shares

Founder % = 8,000,000 / (10,000,000 + 2,500,000) = 64.0%

Actually that's for ₹5 Cr at ₹20 Cr:
Post-money shares = 10M + 2.5M = 12.5M
Founder = 8M / 12.5M = 64.0%... but table says 61.5%

Let me recalculate the matrix correctly:

₹5 Cr investment at ₹20 Cr pre-money:
Investor % = ₹5 Cr / (₹20 Cr + ₹5 Cr) = 20%
Founder old % = 80%
Founder new % = 80% × (1 - 20%) = 64%... Ah, this is wrong approach.

Correct approach:
Post-money = ₹25 Cr
Investor gets = ₹5 Cr / ₹25 Cr = 20%
Everyone else diluted to 80% of prior holdings
Founders had 80%, now have 80% × 80% = 64%... still not 61.5%

I think the table had an error. Let me recalculate correctly for the worked example:

CORRECTED Scenario Matrix: Founder Ownership %

Scenario Matrix: Runway (Months)

(Runway depends only on amount raised, not valuation)

Scenario Matrix: Founder Value at ₹100 Cr Exit

Scenario Matrix: Effective Annual Cost of Capital

Decision Framework: How to Choose¶

Factor 1: Runway Needs - Minimum: 12-18 months to hit next milestone - Comfortable: 18-24 months - ₹3 Cr gives only 14 months → Too short unless certain of rapid progress - ₹5 Cr gives 22 months → Reasonable - ₹7 Cr gives 30 months → Safe, but more dilution

Factor 2: Dilution Tolerance - Raising ₹7 Cr vs ₹3 Cr costs 10-17 percentage points - At ₹100 Cr exit, difference is ₹10-17 crore! - But ₹7 Cr gives you 2.5 years to build vs 1.2 years

Factor 3: Valuation Sensitivity - Moving from ₹15 Cr to ₹25 Cr valuation saves 3-8 percentage points - Don't accept ₹15 Cr if you have conviction for ₹25 Cr - But don't hold out for ₹25 Cr if you only have 2 months runway!

Factor 4: Next Round Assumptions - If you can raise again in 12-18 months at 3-5x valuation step-up, raise less now - If next round is uncertain, raise more to extend runway - Each round typically dilutes 15-25%

Optimal Scenario for EduTech Example:

Recommendation: ₹5 Crore at ₹20 Crore pre-money

Reasoning: - Gives 22 months runway (enough to hit Series A milestones) - Founders retain 64% (reasonable dilution) - ₹20 Cr is fair valuation (not overpriced, not undervalued) - At ₹100 Cr exit, founders get ₹64 crore - Effective cost 11.6% annually (acceptable for growth stage) - Can reach profitability or strong Series A metrics in 22 months

Alternative if desperate: ₹3 Cr at ₹20 Cr (70% ownership, 14 months runway) - Only if very confident of hitting milestones quickly - Reduces dilution by 6 percentage points - Risk: May need to raise again in stressed situation (down round)

Alternative if conservative: ₹7 Cr at ₹20 Cr (59% ownership, 30 months runway) - Extra safety, but costs 5 percentage points - Good if worried about market conditions or execution risk - Gives time to become default alive (profitable)

Common Mistakes to Avoid¶

❌ Mistake 1: Optimizing for Valuation Only - Raising ₹3 Cr at ₹25 Cr sounds great (71% ownership) - But 14 months runway is dangerous → likely need bridge round - Bridge rounds often come with terrible terms (high dilution, high interest)

❌ Mistake 2: Raising Too Much Too Early - Raising ₹7 Cr pre-PMF means high dilution for experimentation - Better to raise smaller amounts until PMF proven - Exception: Deep tech or hardware requiring significant R&D before revenue

❌ Mistake 3: Not Modeling Next Round - Your ownership after THIS round isn't final - Model through Series A, B to understand dilution trajectory - Founders often end with 15-30% after multiple rounds

❌ Mistake 4: Ignoring Burn Rate Changes - Runway calculation assumes constant burn - Burn usually INCREASES after fundraising (hiring, marketing scale) - Model realistic burn increase (often 30-50% growth)

Indian Context: Strategic Considerations¶

Market Sentiment: - Indian VCs have become more cautious post-2022 corrections - Valuations compressed 30-50% from 2021 peaks - Runway is more critical than valuation in uncertain markets

Fundraising Timeline: - Expect 4-6 months for Series A in India (vs 2-3 months in US) - Start fundraising when you have 6-9 months runway remaining - Don't wait until 3 months runway (desperate position)

Regulatory Considerations: - Foreign investment approval (if FDI involved) can take 2-4 weeks - FEMA pricing guidelines may constrain valuation (DCF ±5% range) - Structure rounds to maintain DPIIT recognition (if applicable)

Tax Efficiency: - Raise enough to avoid frequent rounds (each round has compliance costs) - Consider EIS (Employee Stock Issuance) instead of ESOP grants if near round - Time rounds to minimize angel tax exposure if domestic investors

5. Valuation Model Templates¶

Purpose & When to Use¶

These valuation models help you estimate company value using different methodologies. Use these models: - To prepare your own valuation before investor conversations - To evaluate if investor term sheet valuation is fair - For internal planning and target-setting - When defending your valuation in negotiations - To understand how investors think about valuation

Important Note: Early-stage valuations are more art than science. These models provide frameworks, but market dynamics, competition for deals, and founder leverage often matter more than formula outputs.

Model 1: Venture Capital (VC) Method¶

Best For: Pre-revenue to early-revenue startups seeking VC funding

Methodology: Work backwards from expected exit value and investor return requirements.

Step-by-Step Process:

STEP 1: Estimate Terminal Value (Exit Value)
Terminal Value = Expected Revenue at Exit Year × Revenue Multiple
(Revenue multiple based on comparable company exits)

STEP 2: Calculate Required Future Value
Investor wants X% ownership for ₹Y investment
Future Value needed = ₹Y investment × Target Return Multiple

STEP 3: Calculate Pre-Money Valuation
Pre-Money Valuation = Terminal Value / (1 + Discount Rate)^Years
(Or using investor retention %)

Investor % = Investment / Post-Money Valuation
Post-Money Valuation = Investment / Investor %
Pre-Money Valuation = Post-Money - Investment

Alternative (Simpler) VC Method:

Investor wants 10x return in 5 years on ₹5 Cr investment
Future value needed = ₹5 Cr × 10 = ₹50 Cr
Investor target ownership = ₹50 Cr / ₹300 Cr (expected exit) = 16.7%
Post-Money Valuation = ₹5 Cr / 16.7% = ₹30 Cr
Pre-Money Valuation = ₹30 Cr - ₹5 Cr = ₹25 Cr

Excel Formula:

// Inputs
InvestmentAmount = 50000000  // ₹5 crore
TargetReturnMultiple = 10
YearsToExit = 5
ExpectedExitRevenue = 1000000000  // ₹100 crore
RevenueMultiple = 3  // 3x revenue multiple at exit

// Calculations
TerminalValue = ExpectedExitRevenue * RevenueMultiple
// = ₹300 crore

InvestorTargetValue = InvestmentAmount * TargetReturnMultiple
// = ₹50 crore

InvestorOwnershipNeeded = InvestorTargetValue / TerminalValue
// = 16.7%

PostMoneyValuation = InvestmentAmount / InvestorOwnershipNeeded
// = ₹5 Cr / 16.7% = ₹30 Cr

PreMoneyValuation = PostMoneyValuation - InvestmentAmount
// = ₹25 Cr

Worked Example:

Company: HealthTech AI Diagnostics - Current stage: Seed (pre-revenue, pilot customers) - Seeking: ₹3 Cr seed round - Expected exit: Year 5 - Projected Year 5 revenue: ₹50 Cr - Comparable exit multiples: 2-4x revenue (use 3x)

Terminal Value = ₹50 Cr × 3 = ₹150 Cr

Investor wants 8x return:
Investor needs = ₹3 Cr × 8 = ₹24 Cr at exit
Investor % needed = ₹24 Cr / ₹150 Cr = 16%

Post-Money Valuation = ₹3 Cr / 16% = ₹18.75 Cr
Pre-Money Valuation = ₹18.75 Cr - ₹3 Cr = ₹15.75 Cr

Recommendation: Negotiate for ₹15-16 Cr pre-money valuation

Strengths: - Aligns with how VCs actually think - Accounts for investor return requirements - Simple to calculate

Weaknesses: - Highly sensitive to exit assumptions (garbage in, garbage out) - Doesn't work if exit value is unknown - Ignores intermediate dilution (future rounds)

When to Use: - Seed to Series A stage - When comparable exits exist in your sector - When you can credibly project 5-year revenue

Model 2: Comparable Company Method (Comps)¶

Best For: Companies with revenue and clear comparable companies

Methodology: Apply public company or recent transaction multiples to your metrics.

Step-by-Step Process:

STEP 1: Identify Comparable Companies
- Same industry/sector
- Similar business model
- Similar geography (India comps for India startups)
- Similar stage (public companies for later stage, private transactions for early stage)

STEP 2: Calculate Comparable Multiples
For each comp, calculate:
- EV/Revenue multiple
- EV/EBITDA multiple (if profitable)
- EV/GMV multiple (for marketplaces)
- EV/ARR multiple (for SaaS)

STEP 3: Calculate Median/Average Multiple
Take median of 5-10 comps (median more robust than average)

STEP 4: Apply Multiple to Your Metrics
Valuation = Your Revenue (or ARR or GMV) × Comparable Multiple

Excel Structure:

// Comparable Company Table (Columns A-F)
A: Company Name
B: Enterprise Value (₹ Cr)
C: Revenue (₹ Cr)
D: EV/Revenue Multiple
E: Geography
F: Notes

// Row 5: Comp 1 (e.g., Practo)
B5: 2000  // ₹2000 Cr valuation
C5: 500   // ₹500 Cr revenue
D5: =B5/C5  // 4.0x multiple

// Rows 6-14: Comps 2-10

// Row 15: Median Multiple
D15: =MEDIAN(D5:D14)

// Your Company Valuation
YourRevenue = 50  // ₹50 Cr ARR
YourValuation = YourRevenue * MedianMultiple

Worked Example:

Company: B2B SaaS - Supply Chain Management Metrics: ₹10 Cr ARR, Growing 150% YoY

Comparable Public Companies (Indian SaaS):

Note: These are global SaaS, need India discount

Comparable Indian Private SaaS Transactions (2023-24):

Median Multiple = 15.0x ARR
Adjusted for stage (earlier stage = discount): 10-12x
Indian market discount: ~20-30% vs US

Target Multiple: 8-10x ARR for Series A stage B2B SaaS

Your Valuation = ₹10 Cr ARR × 8x = ₹80 Cr post-money
For 20% round = ₹64 Cr pre-money, ₹16 Cr raise

Strengths: - Market-based (reflects actual investor appetite) - Easy to explain and defend - Updates with market conditions

Weaknesses: - Requires comparable companies (hard for novel business models) - Market multiples fluctuate significantly - Public company multiples may not apply to private companies

When to Use: - Series A and beyond - When you have revenue/ARR to multiply - When clear comparables exist

Model 3: Discounted Cash Flow (DCF) Method¶

Best For: Later-stage companies with predictable cash flows; required for FEMA compliance

Methodology: Project future cash flows and discount to present value.

Step-by-Step Process:

STEP 1: Project Free Cash Flows (FCF) for 5-10 years
FCF = EBITDA - Taxes - CapEx - Change in Working Capital

Year 1: ₹(5 Cr) (still burning)
Year 2: ₹(2 Cr)
Year 3: ₹0
Year 4: ₹3 Cr
Year 5: ₹8 Cr
... (continue to Year 10)

STEP 2: Calculate Terminal Value
Terminal Value = Year 10 FCF × (1 + Perpetual Growth Rate) / (Discount Rate - Growth Rate)

Or: Terminal Value = Year 10 EBITDA × Exit Multiple

STEP 3: Discount All Cash Flows to Present Value
PV = FCF / (1 + Discount Rate)^Year

STEP 4: Sum Present Values
Enterprise Value = Sum of PV(FCF) + PV(Terminal Value)

STEP 5: Adjust for Cash and Debt
Equity Value = Enterprise Value + Cash - Debt

Excel Formula:

// Assumptions
DiscountRate = 0.40  // 40% for early-stage startups (high risk)
TerminalGrowthRate = 0.04  // 4% perpetual growth
Years = 10

// Cash Flow Projections (₹ Crores)
Year1_FCF = -5
Year2_FCF = -2
Year3_FCF = 0
Year4_FCF = 3
Year5_FCF = 8
Year6_FCF = 15
Year7_FCF = 25
Year8_FCF = 35
Year9_FCF = 45
Year10_FCF = 55

// Present Value Calculations
PV_Year1 = Year1_FCF / (1 + DiscountRate)^1
PV_Year2 = Year2_FCF / (1 + DiscountRate)^2
...
PV_Year10 = Year10_FCF / (1 + DiscountRate)^10

// Terminal Value
TerminalValue = Year10_FCF * (1 + TerminalGrowthRate) / (DiscountRate - TerminalGrowthRate)
PV_Terminal = TerminalValue / (1 + DiscountRate)^10

// Enterprise Value
EnterpriseValue = SUM(PV_Year1:PV_Year10) + PV_Terminal

// Equity Value
EquityValue = EnterpriseValue + Cash - Debt

Worked Example:

Company: EdTech Platform (Profitable) Current Cash: ₹5 Cr Current Debt: ₹2 Cr

10-Year FCF Projection (₹ Crores):

Sum of PV(FCF Years 1-10) = ₹45.9 Cr

Terminal Value = ₹135 Cr × (1.04) / (0.40 - 0.04) = ₹389.7 Cr
PV(Terminal Value) = ₹389.7 Cr / (1.40)^10 = ₹13.4 Cr

Enterprise Value = ₹45.9 Cr + ₹13.4 Cr = ₹59.3 Cr
Equity Value = ₹59.3 Cr + ₹5 Cr (cash) - ₹2 Cr (debt) = ₹62.3 Cr

Valuation: ₹62 Crores

Sensitivity Analysis:

DCF valuation is highly sensitive to discount rate assumption!

Strengths: - Theoretically sound (intrinsic value based on cash generation) - Required for FEMA compliance in India - Forces discipline in financial projections

Weaknesses: - Garbage in, garbage out (projections often wrong) - Extremely sensitive to assumptions (discount rate, terminal growth) - Not practical for pre-revenue startups - Often produces lowball valuations for high-growth startups

When to Use: - Series B and beyond - Profitable or near-profitable companies - FEMA compliance requirement (foreign investment in India) - Mature businesses with predictable cash flows

Indian Context: FEMA Valuation Requirements

For foreign investments, RBI requires valuation within ±5% of: - DCF valuation, OR - Comparable company valuation, OR - Other internationally accepted methodology

Most Indian startups use combination of DCF and comparable method, then take the higher of the two (within reason) to maximize valuation while staying FEMA-compliant.

Cross-References to Chapters¶

This appendix supports concepts covered in:

Chapter 2: Valuation Fundamentals - Pre-money vs post-money concepts (Calculator 1, 4) - Valuation methodologies explained here in detail (Calculator 5) - Fully diluted calculations (Calculator 1)

Chapter 7: Term Sheet Analysis - Liquidation preference mechanics (Calculator 2) - Anti-dilution protection impact (covered in research, not included in final 5 calculators) - Option pool treatment (Calculator 1)

Chapter 19: Multi-Stage Fundraising - Cap table evolution across multiple rounds (Calculator 1) - Dilution trajectory modeling (Calculator 4) - Maintaining founder ownership through rounds

Chapter 21: Exit Planning - Liquidation waterfall calculations (Calculator 2) - Exit scenario analysis (Calculator 2, 4) - Return multiple calculations for all stakeholders

Additional Resources¶

Cap Table Management Software: - Carta - Industry standard, expensive, comprehensive features - Pulley - Modern UI, better for early-stage startups - Eqvista - India-focused, affordable - Capbase - Free for early-stage startups - Google Sheets Templates - Free, fully customizable

Financial Modeling Resources: - NVCA Model - Free Excel template from National Venture Capital Association - Wall Street Prep - Paid courses on financial modeling - Foresight - Waterfall calculator templates - Y Combinator Resources - Free financial model templates

Indian Regulatory References: - RBI Master Circular - Foreign investment regulations and pricing guidelines - Companies Act 2013 - Sections on share issuance and CCPS - DPIIT Startup Recognition - Benefits and eligibility - Income Tax Act - Angel tax (Section 56(2)(viib)), ESOP taxation

Professional Help: - Hire a CA/CFO for Series A and beyond - Use professional cap table software from Seed stage - Consult tax advisor before ESOP exercises - Legal review for all term sheets and SHA clauses

Conclusion¶

These five financial calculators form the core toolkit for every founder navigating startup fundraising. Master these methodologies, but remember:

1. Formulas are just tools - Actual outcomes depend on negotiation, market conditions, and execution
2. Update frequently - Cap tables and models should be living documents
3. Seek professional help - Use these for understanding, but consult experts before critical decisions
4. Indian compliance matters - Always verify FEMA, RBI, and Companies Act requirements
5. Protect yourself - Understand liquidation scenarios before signing term sheets

The best protection is knowledge. Now you have the tools to model every major financial decision in your startup journey.

This appendix is for educational purposes only and does not constitute legal, financial, or tax advice. Always consult qualified professionals before making investment or fundraising decisions.

Disclaimer¶

This chapter provides educational information about startup funding and is not legal, financial, or investment advice. Every startup situation is unique. Consult qualified professionals (lawyers, accountants, financial advisors) before making any funding decisions.

Last Updated: November 2025