Role of Venture Capital in “Start-ups” Moment – an analysis of Valuation Models

Mr. Pramod Kumar Sinha

doi:https://doi.org/10.51976/gla.prastuti.v8i1.811905

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Role of Venture Capital in “Start-ups” Moment – an analysis of Valuation Models

Pramod Kumar Sinha

https://doi.org/10.51976/gla.prastuti.v8i1.811905

Published Online: July 12, 2019

Author Details ( * ) denotes Corresponding author

1. * Pramod Kumar Sinha, Research Scholar, GLA University Mathura, Mathura, Uttar Pradesh, India

Of late, venture capital funding has come very handy particularly to the entrepreneurs with talent and business skills. There has been an emerging trend in the growth of venture capital finance in the recent past. This has assumed more significance as the bankers, the traditional financiers, have become more risk averse in view of the increased level of non-performing assets. Venture capital fund have gained preference to many as an alternative funding including MSME sector. They are expanding their reach into the new areas like clean energy, healthcare, pharmaceuticals, retail etc. besides traditional activities like IT sector and others. However, there are few critical issues involved in VC financing which hamper the efficient growth of VC funds in India. Among others, the valuation aspect of a venture capital projects assumes critical importance as it directly affects the cost aspects to an entrepreneur and ROI to the venture capital funding organization. Therefore, there is a need to analyze various valuation models per-se used to evaluate a venture capital payment and suggest the suitable model keeping in view the interests of both the parties.

Therefore, this paper is an attempt to evaluate and make an in-depth analysis to compare various methods of venture capital financing valuation considering the models being adopted in other developing countries and also to suggest the feasible and an appropriate model for valuation of venture capital finance. The paper examines the financial implications of different models being used to evaluate the venture capital finance. These models are not uniform. They are unregulated and arbitrary in nature. The models popularly being used in Indian context have been analyzed and compared with the different valuation models followed and practiced in other developed countries. Thus the study also reveals the shortcomings of the valuation models being followed by Indian Venture Capital Funding organizations in general to indicate financing and cost aspects of such models. The study concludes the need to look into whether different and appropriate models can be used at different stages of venture capital financing as followed in other developed and developing countries. This study may be useful for venture capital finance organizations and more, so the entrepreneurs availing venture capital financing.

Keywords

Venture capital, MSME sector, Cost, Feasible, Valuation models.

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