A credible valuation starts with the purpose, date, rights attached to the security and evidence available. A fundraising negotiation, ESOP exercise, foreign investment and statutory valuation can require different assumptions and authorised signatories. This guide focuses on common analytical mistakes rather than promising a single valuation number or an investment outcome.
Compare business model, revenue quality, growth, margins, customer concentration and geography before applying a listed-company or transaction multiple. A headline funding valuation may include preference rights that ordinary equity does not have. Document the selection and exclusions, the date of market data and how enterprise value becomes equity value after debt and cash adjustments. Do not multiply a user count by an unrelated company's financing announcement.
Separate historical performance from management assumptions. Reconcile revenue to the accounts, distinguish contracted revenue from pipeline, and model churn, collections, hiring, working capital and capital expenditure. Show downside and upside cases rather than using unsupported precision. A DCF can be useful, but small changes in discount rate or terminal assumptions can materially change the result. A pre-revenue business often needs triangulation with other methods and explicit uncertainty.
Use a fully diluted cap table and identify options, warrants, convertible instruments and promised pools. Model the conversion terms and liquidation preferences rather than assuming every share has identical economics. Distinguish pre-money from post-money value and explain the treatment of a proposed ESOP pool. A negotiated term sheet is evidence, but it is not automatically a compliant report for every statutory purpose.
Section 56(2)(viib), commonly called angel tax, does not apply on or after 1 April 2025 under the amended provision. Do not present the old premium-tax framework as a current requirement for a 2026 funding round. This does not abolish valuation requirements under company law, FEMA or other applicable income-tax provisions. Historical assessments and earlier transactions need their own period-specific analysis. The Income-tax Act, 2025 applies from 1 April 2026; verify the corresponding current provision instead of silently reusing an old section number.
An IBBI Registered Valuer's authority is linked to the applicable law and registered asset class. For unlisted-share ESOP perquisite-tax FMV, a SEBI-registered Category I merchant banker is required; IBBI registration alone is not a substitute. FEMA and other valuations must satisfy their own professional, methodology and reporting requirements. Define the purpose and intended users of the report before commissioning it.
Keep financial statements, customer concentration analysis, contracts, intellectual-property evidence, debt schedules and the cap table with the valuation working papers. Explain related-party transactions, one-off revenue and unusual margins. Align figures across the deck, accounts and report. A range supported by transparent assumptions is more defensible than a precise number based on unverified inputs.
Prepare a dated ownership schedule, recent financials, reconciled operating metrics and a forecast with explanations for the principal assumptions. State the financing instrument, proposed investor residence and transaction purpose. Record sensitivities, limitations and required approvals, and obtain the correct professional report for each applicable framework. Virtual Auditor's owner-attested experience is 100+ valuations.
https://www.incometaxindia.gov.in/w/section-56-58 https://www.incometaxindia.gov.in/income-tax-act-202511