Company Valuation - Truth or a Scam?

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Company Valuation - Truth or a Scam?
A significant avalanche of startup fraud is
ahead. Massive. This has already started to
happen in recent times with startups, but it will
only increase in volume, magnitude, and
audacity. Fraud is now prevalent in the "new
economy." Things will prosper when the likelihood
of reward exceeds the likelihood of risk. This
Inflection Point has been reached in the startup
economy. Here's why. Due to a combination of
tremendous demand and low supply, the market is
witnessing undoubtedly absurd values for
startups in every sector. With no expectation of
profit, common "normalized" valuations operate on
a 20x multiple of revenue i.e. for a revenue of
One rupee, a company can get a valuation of INR
20 . This is for unaudited, early-stage
businesses. Startups these days are creating a
false appearance of Revenue by getting a client,
supplier, or associated party to give their
business One million and then passing it off as
revenue, i.e. Income of One million. Then, they
can reimburse the person (supplier, partner) for
that One million by claiming COGS or other
business expenses, etc. This practice is known as
round-tripping. With the exception
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• of taxes, it is essentially a zero-sum game (and
  the impropriety of it). It is relatively easy to
  set up. There are massively outsized upsides to
  this distortion of revenue given the current 20x
  valuation atmosphere (ie. fraud).
• You can receive a 20 million valuation if you can
  show One million in revenue. Seems too simple.
• This choice will grow more appealing if you are a
  startup founder who is scrambling for the next
  funding round with your back against the wall.
• On the basis of this possible upside, you might
  even justifiably design a situation in which a
• "customer" pays 1 million or even 10 million to
  create income without even rounding up the
  amount. Think of the initial expenditure as an
  initial "investment." Knowing that a 10 million
  investment will result in a 200 million
  valuation surge gives a good potential for
  growth.
• In this environment, it is easy to see someone
  investing 10 million in order to gain 200
  million.
• To take an Example, a startup S spoke to a
  supplier and they made a deal, The supplier would
  give the Startup One crore. The startup then
  makes a false claim that this One crore was his
  revenue and hence gets a Valuation of 20 crores.
  Now he can payback the Supplier
• While 99 of folks are unlikely to consider this
  as a 'choice', there are enough crazies out there
  that
• would perceive this as a big invitation. People
  may be seduced into choosing this course of
  action out of malice or out of a need to save
  their business.
• How to identify a Fraud Start-up
• The possibility of fraud is a constant worry when
  investing in startups. There are some red flags
  to watch out for . They may help avoid dubious
  investments although there are anyway no definite
  assurances when it comes to investing.
• They guarantee substantial returns with minimal
  or no risk.
• They exert a lot of pressure on you to invest
  right away.
• They decline to give specific investing
  information.
• They assert to have access to assets that are not
  generally accessible to the general public or
  inside knowledge.
• To access the investment, you must pay a charge
  upfront.
• They exert pressure on you to conceal your
  investment.

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• Ensure that you ask them any questions you may
  have on the company or the investment. Be willing
  to press for clarification. If the founding
  members are reluctant to respond to your
  inquiries, it can
• be a warning sign.
• Have everything documented
• You and the business should always have written
  agreements. This covers both the investment
  agreement and any other contracts connected to
  the investment. This will give you some
  protection in the event of a disagreement.
• Be wary of false promises
• Startups frequently make significant promises to
  funders, but not all of them can keep them.
  Startups that make exaggerated claims about their
  offerings or future growth should be avoided.
  Even after keeping all this in mind and watching
  for all potential red flags, one can still be
  sucked
• into this web of startup scams. To make sure you
  dont lose all your finances, Make a variety of
  investments. Don't put all of your startup
  investment eggs in one basket. To lower your
  risk, invest your money in a few different
  firms. This way you can be sure that you are safe
  no matter
• Source Business consultant Ranjan Das Talks