CA Final · Advanced Financial Management · Startup Finance
Pune-based startup NimbusPay is valued by a venture investor using the Venture Capital method. Expected net profit in Year 5 is ₹6 crore, and a comparable listed firm trades at a P/E multiple of 20. The investor requires a target IRR of 40% p.a. for a 5-year exit. Ignoring dilution and interim cash flows, what is the post-money valuation today (approx.)? (Use (1.40)^5 = 5.378)
Terminal value at exit is profit of ₹6 crore times P/E 20, which is ₹120 crore. Discounting this at the investor's 40% target IRR over five years, dividing by 5.378, gives a post-money valuation of about ₹22.31 crore.
- A₹22.31 croreCorrect
- B₹30.00 crore
- C₹120.00 crore
- D₹645.4 crore
Explanation
Terminal value = 6 × 20 = ₹120 crore. Post-money value today = 120 / 5.378 = ₹22.31 crore. Option ₹120 crore ignores discounting; ₹645.4 crore wrongly compounds instead of discounting.
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