Not all assets in the modern startup environment may be felt or visible. Many Indian companies expand quickly without having much land, buildings, or tools. Their value results from unnoticeable factors, including innovative technology, a strong brand name, or a devoted user base. These intangible assets are invisible but strong.
Even when there are limited physical assets, they determine how much a company is really worth. Knowing and appreciating these intangibles enables founders, investors, and partners to make more informed financial choices.
The role intangible assets play has become even more crucial as Indian businesses grow older. Therefore, investment and expansion depend on knowing how to correctly appreciate their worth.
What Are Intangible Assets?
Items that have actual worth for a company but lack a tangible form are known as intangible assets. They comprise a brand, intellectual property (IP) like software or patents, and a loyal customer base.
Startups could find these assets to be more precious than the actual ones. For instance, a well-known app could not have facilities or equipment but could be worth millions on the strength of its brand name, unique technology, and massive audience.
Why Valuing Intangibles Matters for Startups
Appreciating intangible assets is more than just a formality, as it serves a number of practical purposes:
Fundraising:
Investors need to know what adds value to your business. Higher financing can be aided by a clear assessment of your intellectual property, brand, or user base.
Mergers and acquisitions (M&A):
Companies determine the value of every asset during a merger or acquisition. Your deal price will rise with a well-valued brand or intellectual property portfolio.
Regulatory and accounting conformity:
Indian accounting standards (Ind AS 38) mandate fair value valuation of intangibles for tax purposes and financial reporting.
Using IP for financing:
The Department for Promotion of Industry and Internal Trade (DPIIT) is creating networks whereby businesses may use intellectual property as collateral for loans.
The Three Key Intangibles in Startups
Let’s focus on brand, IP, and user base (or customer relations) like what they are, why they matter, and how to value them.
A. Brand
A brand is the heart of customer trust. It’s how people see your business regarding your reputation, logo, and story. A strong brand lets you charge more and keep loyal users.
In India’s startup space, where competition is huge, a clear brand identity helps you stand out. A food-delivery or tech-service app with a trusted name is often valued far higher than newer players with similar products.
B. Intellectual Property (IP)
IP includes patents, trademarks, copyrights, algorithms, and software. These protect innovation and prevent others from copying your ideas.
For tech startups, IP is a major part of total value. Without patents or proprietary code, your unique edge disappears, and so does investor trust.
C. User Base
In a digital business, your users are your biggest strength. The number of active users, engagement levels, and repeat customers all reflect value.
A large, loyal user base can lead to steady revenue and growth, even before profits begin.
Common Valuation Methods for Intangibles
Since intangibles can’t be touched, their value must be calculated using financial models. Experts usually follow three main approaches:
1. Income Approach
This looks at how much money an asset will generate in the future.
Example: Relief from Royalty, how much you’d pay to license your brand if you didn’t own it.
2. Market Approach
Here, you evaluate your asset against comparables from breaking news to the financial news page refreshes. One’s just sold or assessed. When you can locate trustworthy market data, it works best.
3. Cost approach
This determines the price one should pay to replace or rebuild the asset. For a startup, that could involve calculating the time and money required to design the brand from scratch, grow the user base, or repair the app.
Every strategy has its own benefits and drawbacks. Startups sometimes employ a combination depending on the maturity of the asset and the type of data available.
Major Obstacles Facing Indian Companies
- Limited data: Startups are mostly young, thus their future cash flow is unknown.
- Changing markets: User behaviour, technical trends, and legislation may rapidly change long-term value.
- Fewer comparables: Finding comparable assets for market analysis becomes difficult with novel business models.
- Overlap of assets: Brand, product, and user experience often overlap, making separate valuations difficult.
Valuation has to adhere to Indian rules and could necessitate certified valuers.
Despite these obstacles, a straightforward and credible valuation enables new companies to generate legal compliance as well as investor confidence.
Useful Advice for Founders
- Maintain records of IP ownership, trademarks, and brand measurements.
- Keep tabs on your users’ retention, engagement, and growth statistics.
- Use true projections and avoid overestimation of future profits.
- Fit the asset type with valuation approaches.
- Employ knowledgeable experts in Indian valuation legislation and criteria.
- Professional appraisal guarantees your statistics resist audit and investor examination.
Bottom Line
Brand, IP, and user base, among other intangible assets, define success in the Indian startup field. They shape investors, propel expansion, and define reputation. When properly valued, they reveal the genuine strength of your company, that which you have created, not simply what you own.
Work with Valuation India if you want to know the true value of your company. With accuracy and credibility, our team of experts is an expert at assessing brands, intellectual property, and digital assets. Contact Valuation India right away and find the real worth behind your concepts!