How to Calculate Valuation of a Company Shark Tank?

Shark Tank! These two words are creating a buzz across business circles in India. As an entrepreneur aspiring to make it big, we’re sure you must have heard about them. To get investors from the Shark Tank in your business isn’t a cakewalk. It is an achievement in itself, as it involves a rigorous and challenging business valuation process. But then how to calculate the valuation of a company in Shark Tank India? Let’s see.

What is Shark Tank India?

Shark Tank India is a business reality show. Here, entrepreneurs pitch their businesses to investors and try to get investments from them based on how the latter like their business idea, product, etc. In exchange for the money invested, Sharks usually demand a stake in the business that is a percentage of ownership and a profit share. With investments, the entrepreneur gets access to Shark’s experience, suppliers, and network.

Terms Commonly Used in Shark Tank

Before we see how to calculate company valuation in Shark Tank, let’s overview some terms that the Shark Tank team uses while interacting with entrepreneurs.

• Valuation: It is the company’s total value after it closes the round of fundraising. It is based on the amount raised against the equity shares.
• Equity Share: It is the percentage of a company an investor or shareholder owns.
• Ask: It is the offer that entrepreneurs pitch for their companies. They ask for a particular amount for specific equity to value their company to a certain valuation after the fundraising round. If an entrepreneur asks 20 Lakhs for 20% of the company that will mean the company’s valuation of 2 Crore.
• Offer/Counter Offer: It is a negotiation that investors and entrepreneurs do after the latter does the Ask. The counter offers are placed if the investors believe the valuation should be less than asked or the businessperson thinks that the valuation should be greater than the Shark’s offer.

How to Calculate the Valuation of a Company in Shark Tank India?

Now, how is valuation calculated in Shark Tank? The group of entrepreneurs uses four valuation methods – Future Market Valuation, Earnings Multiple, Revenue Multiple, and the Intangibles of Valuation. Let’s overview each to learn more.

Revenue Multiple

In the revenue multiple method, if the entrepreneur values the company at say INR 10 lakhs in sales, the Sharks would ask about the previous year’s annual sales. If the businessperson says INR 2,50,000, it will take about four years for a company to reach the sales value the entrepreneur is quoting now. If the entrepreneur says that the previous year’s sales were INR 75,000, the Sharks will question the value of INR 10 lakhs.

However, if the company has entered a sales agreement with a client to sell INR 5,00,000 worth of products, the sales forecast would make the evaluation more attractive.

Future Market Evaluation

You can calculate the future value of a business in a way you do so through the revenue and earnings multiple methods. Here, the only drawback is the potential inaccuracy of the numbers and forecasts. The Sharks might ask if the entrepreneur forecasts sales and profits in the next three years. Further, they would compare those numbers to other businesses in the same industry.

Earnings Multiple

Companies pitching for funds in Shark Tank aren’t publicly traded. Hence, they do not have any equity shares or published earnings multiples for the investor’s consideration. But the Sharks can use the business’s profit compared to the company’s valuation from sales revenue to derive an earnings multiple.

Intangibles of Valuation

How to calculate the valuation of a company in Shark Tank? An interesting answer to this question is the intangibles of the valuation method. In this, the Sharks don’t necessarily consider numbers to value the business. Intangible aspects like the entrepreneur’s story, dedication, the urge to grow, social responsibility, etc., are considered.

We hope the above answers how to calculate the valuation of a company in Shark Tank. Valuing your business through the above and other valuation methods could prove intricate. Hence, it is prudent to partner with valuation experts and know the value.