Any five of the following seven sharks are present in each episode:
1. Uniqueness and ingenuity of product/service
Investment in a company means investing in Product/Service rendered by Company. So, we must know about the Product/service like availability of resources, uniqueness and differentiation, chances of duplication and perishability of product (is suitable with business model) etc.
2. Experience and commitment of the management to the idea:
business skills and expertise in that sector to run the company. It would be even better if the investor has a good expertise in same industry.
E.g: Aman Gupta has a good expertise in Marketing of electronic gadgets, he invested in a company named Hammer for 40% stake which deals in audio devices and fitness bands.
3. Understanding the key metrics which defines the valuation of the company:
We should have knowledge of numbers like Gross Margin, Turnover, expected sales, net profit, cost analysis, other investment etc. Our Stake in investing company depends on valuation of company, usually the general methods used for valuation are
Comparable Analysis: It is a relative valuation method in which you compare the current value of a business to other similar businesses by looking at trading multiples like P/E, EV/EBITDA, or other ratios. Multiples of EBITDA are the most common valuation method.
Discounted Cash Flow (DCF) analysis: It is an intrinsic value approach where an analyst forecasts the business unlevered free cash flow into the future and discounts it back to today at the firm’s Weighted Average Cost of Capital (WACC).
Precedent Transactions: It is another form of relative valuation where you compare the company in question to other businesses that have recently been sold or acquired in the same industry
Eg: A Start-up named Tinker Bell Labs valued at 35 crores and got investment for an amount of 1.05 crore (3% stake).
Another Start-up named Hammer valued at 2.5 Crores and got investment for an amount of 1 crore (40% stake).
4. Knowledge about the target market and stage of market capture:
Know the TAM, SOM of our product/service and the competitors in the sector and how they affect our business and if we are monopoly, then check whether any chances of break of monopoly.
5. Scalability of business
Think in long Time like customer lifetime* and get through the Business Process/model to know about the long-term viability of the business. Customer preferences may change over time, and the offered product or service might get outdated and if product is only suited to the present market, check whether is there any scope to adjust to future changes.
**Customer Lifetime: It's the value of average customer's revenue generated over their entire relationship with a company.