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While rising funds a Startup has to obtain a Valuation Report before issuing the following instruments under Private Placement or on a preferential basis.
In this method the total of assets is taken and the outstanding liability is subtracted from the same. This is most basic and easiest way to do a valuation. This method is most suitable for family and offline businesses where brand name is not important.
This is the most common way to get the valuation done. In this method the future cashflows that is projections are considered for arriving at the valuation. To go though this valuation the projections, budgets and cashflow for next 5 years are prepared.
In this method the merchant banker valuer identifies a similar company as yours and then conducts a valuation. This is also a commonly used method.
| Sr. No. | Type of Activity | Valuation Report form registered valuer under Companies Act 2013 | Valuation Report from Merchant Banker | Our Comments | Cost |
|---|---|---|---|---|---|
| 1 | Raising of funds through private placement by Issuing Equity Shares/preference shares | Yes, this is required as per the companies act 2013 | Yes, this is required | Generally, start-ups take only a report from Registered valuer. | Around Rs 1.5 lakhs for both the reports |
| 2 | Raising of funds by issuing equity shares through rights issue | Not Required | Not required if Valuation done through NAV method | This is the best way to avoid valuation report expenses | |
| 3 | Raising of funds through CCD i.e. convertible debentures | Not required if the CCD will be converted at the future valuation date. Required if the conversion ratio is already decided when issuing the shares | Not required for issue. Required when CCD are converted to equity shares |
Rs 40000 for 1 report | |
| 4 | Convertible Notes | Not required at time of issue. Required when convertible notes are converted into equity shares |
Not required at time of issue. Required when convertible notes are converted into equity shares |
The start-up should be registered under start-up India scheme & minimum amount to be raised from 1 investor should not be less than 25 lakhs | Rs 40000 for 1 report |
Merchant Banker valuation is now only required if the income tax officer demands it. So when raising funds only the valuation report from the registered valuer is required.
The cost for the same starts from INR 65,000.
We can issue a Merchant Banker report in 10-15 working days.
No. If you are issuing the shares to the existing shareholders through rights issue, a Merchant Banker Valuation report is not required. Income tax authorities may still ask for the same.
No. A valuation report can just be used as legal evidence for your valuation. The founders themselves have to arrive at the value and convince the investors of the same.
As per the new rules the government has made it mandatory to get the share valuation done by the Merchant banker when a start-up issues the shares to the investors. This is to determine the fair value of shares.
As per the new notification only Merchant bankers are allowed to give the valuation report. Earlier the CA’s were allowed to issue the same.
You do not require a merchant banker valuation report if you are issuing CCD to the domestic investors. You will require a valuation report to be submitted to RBI if you are issuing CCD to the foreign investors
No a Merchant Banker report is not required if the CN are issued.
