Start-up Valuation: How to know when your EdTech start-up is worth a lot

 

Coronavirus Pandemic turns out to be Blessing in Disguise for EdTech Start-ups, as during pandemic only online education have emerged as never before. Indian EdTech companies started growing at a rapid pace. This also meant the injection of money by investors who were betting on online Education in India and excited to fuel funds.

With a boom in the market of EdTech start-ups and funding flow, the valuation of such EdTech start-ups skyrockets massively.

A company's valuation is an excellent metric for potential investors to assess its financial risk and to determine whether it is worth investing.

Factors affecting the valuation of an EdTech Start-ups

Some EdTech companies are valued more than others, simply differentiated by the below-mentioned factors affecting their valuation.

·       Market research is crucial while valuing your EdTech Company, as it is market research only that enables you to understand what existing problem market had of which your venture is a solution & how successful you are in solving same.

·       Valuation differs from company to company based upon its Size, human resources, and existing customer base.

·       Whether you are a pre-revenue or an established company. If you are an established venture already turning a profit then your valuation can be much higher compared to the one struggling to survive in the initial stage. Use past performance to determine projected revenue figures. Valuation is based often on multiples of revenue.

·       Another crucial factor to determine the valuation of EdTech Startups is evaluating whether Company is generating profits consistently or is in debt. If the high debt in an organization is the result of poor management or lack of operational planning then it is a point of concern for investors and cannot be overlooked.

·       Valuation depends upon Intention. Whether the intention is to sell your EdTech start-up or finding an investor for the same. When the intention is to sell, then obviously you are willing for a huge sum in consideration, as it is the last resort when you can make money out of your business so you need to come up with fair and genuine valuation possible.

But when you aim to continue with your business, and just looking for Investors, then your approach is different, apart from monetary benefit, you consider other factors too as you still have a way to go. Investor’s participation, network, and experience can fetch you more money anytime later.

 

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Right approach while proceeding with EdTech Start-up Valuation

Think about how much money you need to get to the next stage, add 50%, and then go out and start generating investor interest. Afterward, evaluate where you are at with Investor Interest.

If by this time your start-up has garnered high calibre Investors all set to invest then you can presume your EdTech is valuable. Then move forward to maximize your revenue. Else have a fair valuation. Multiply the amount by 2 or 3 and be open for negotiations.

Experts have a general belief that Valuation should be 5X your projected revenue.

Are Indian EdTech companies breaking the bank of Indian families to glamourize their Valuation?

With each passing day, EdTech start-ups are capturing the education sector like never before where they are making tall claims about affordability and targeting the right income groups, but Indian EdTech companies cannot run away from the fact that they are targeting Indian families with over INR 45K per month which makes a tiny fraction of India’s population among the richest 20%.

No other emotion is powerful than FOMO (Fear of missing out).

Fear amongst the parents that my child will be left behind in learning & growing causing them to sign up for these EdTech Companies. Spending extra on electronic devices, online skills learning, co-curricular activities, EdTech products, and even EdTech apps. All these are exorbitant expenses for an average household which impact their packet and hamper the monthly budget. So rather than paying for these things upfront, there is now a need for the availability of EMI credit. Which has arisen the obvious need for EdTech Loans.

Tall ravishing towers of EdTech start-up Valuation are building on Loans.  Despite their claims about affordability and targeting the right income groups, EdTech start-ups cannot run away from the fact that many EdTech users have had to use some form of financing to get access.

Many Indian EdTech companies named Unacademy, BYJU’S, WhiteHat Jr, Toppr etc, offer credit card-based EMI options and other financing help to make parents afford the fees.

Cheap loan accessibility to EdTech Companies indeed bring down the initial cost and raise their demand gradually but stacking students with loans even before they graduate is a right selling principle?

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