Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The common methods
Two methods dominate. DCF values the company on its projected future cash flows — suited to startups with little history but a clear plan — and must be done by a merchant banker. Net Asset Value values it on the book value of assets less liabilities. The right choice depends on the transaction and which rule you are satisfying.
Which rule needs which valuer
For a preferential allotment under company law you need an IBBI-registered valuer; for a foreign investor FEMA needs a merchant banker or CA certificate; for income-tax FMV you use Rule 11UA. One round can need more than one certificate.
A worked example and tips
Imagine a SaaS startup raising a seed round. Its merchant banker prepares a DCF projecting three years of subscription revenue with a discount rate reflecting the risk, arriving at a value that supports a price of ₹150 per share. Two things make or break such a valuation: the assumptions must be realistic — hockey-stick projections invite scrutiny from both the tax department and future investors — and the signed report must be retained with the board minutes and the allotment papers. Where the same round also has a foreign investor, the FEMA fair-value floor applies in addition, and a company-law registered-valuer report is needed for the preferential allotment. Lining up the right valuations before you allot avoids a rejected ROC or RBI filing afterwards. Our startup service coordinates the valuation and the filings.