Blog
Valuation
What Your Startup's Valuation Report Actually Says: DCF, Rule 11UA and the Three Different Reports Indian Law Asks For, Decoded
Every priced round in India comes with a valuation report that says your shares are worth at least what the investor is paying. Founders rarely read it. What it is for, which law asks for which report, and why it does not set your price.
Published 28 September 20265 min read
The short answer
A valuation report in an Indian startup round does not decide your price; the negotiation does. The report exists to show regulators that the price is at or above fair value. Depending on who invests, you may need a registered valuer's report under the Companies Act, a FEMA fair value certificate for non-resident investors, and, for tax purposes like ESOPs and secondary sales, a Rule 11UA valuation. Most are built on discounted cash flow projections that are designed to support the agreed price.
Who this is for: Founders about to close a priced round who need to commission or sign off a valuation report, and founders confused by how a ₹40 Cr valuation "becomes" official.
Summary: what most founders miss
- Your price comes from the term sheet. The valuation report confirms that the price meets legal floors, not the other way round.
- Three different laws can ask for a valuation: the Companies Act, FEMA and the Income-tax rules. One valuer can often cover all, if briefed.
- For residents, Rule 11UA recognises NAV and DCF methods; for non-residents, five more methods were added in 2023, including comparable company multiples and option pricing.
- A report can be dated up to 90 days before the allotment for tax purposes. Stale reports are a common diligence finding.
- A DCF that justifies ₹60 Cr today becomes evidence against you if you later sell shares at ₹40 Cr. Keep projections defensible.
In every Indian priced round, someone eventually asks: "Who is doing the valuation report?" Founders often assume the report decides the valuation. It does not. It is paperwork that confirms, for three different sets of rules, that the price you negotiated is not below fair value.
Understanding what it is and is not saves time, money and awkward questions later.
Why does a startup need a valuation report at all?
| Law | When it applies | Who can sign | What it confirms |
|---|---|---|---|
| Companies Act (preferential allotment) | Any issue of shares or convertibles to specific investors | IBBI-registered valuer | The price is justified for a preferential allotment |
| FEMA (foreign investment) | Any issue to a non-resident investor | Chartered accountant, SEBI-registered merchant banker or practising cost accountant | The price is not below fair value under an internationally accepted method |
| Income-tax (Rule 11UA) | ESOP perquisite value, secondary transfers, some share issues | Merchant banker for DCF; accountant for NAV | Fair market value for tax purposes |
Swipe the table sideways to see all columns.
Since angel tax was abolished for shares issued from FY 2024-25, the income-tax valuation mostly matters for ESOPs and secondary transfers rather than primary share issues.
Which methods do valuers use?
| Method | Available for | What it does | Startup reality |
|---|---|---|---|
| Net asset value (NAV) | Residents and non-residents | Book value of assets minus liabilities | Usually far below round price for a startup |
| Discounted cash flow (DCF) | Residents and non-residents | Present value of projected future cash flows | The default for startup rounds |
| Comparable company multiple | Non-residents | Applies peer valuation multiples | Useful when listed peers exist |
| Probability weighted expected return | Non-residents | Weights several exit scenarios | Used for complex cap tables |
| Option pricing method | Non-residents | Values classes of shares with different rights | Relevant for CCPS with preferences |
| Milestone analysis | Non-residents | Values based on milestones achieved | Early-stage and deep tech |
| Replacement cost | Non-residents | Cost to rebuild the business | Rarely used for consumer |
Swipe the table sideways to see all columns.
How the DCF is actually built
In practice, the valuer receives your agreed price and your business plan, then builds a DCF using your projections, a discount rate and a terminal value. The projections usually come from the same model you showed investors.
| Input | Typical range | Effect on value |
|---|---|---|
| Revenue growth in projection years | Your plan, often 50% to 100% a year early on | The biggest lever |
| Terminal growth rate | 4% to 6% | Small changes move value a lot |
| Discount rate | 20% to 30% for early-stage startups | Higher rate, lower value |
| Terminal year margin | EBITDA margin at maturity | Large effect |
| Projection period | 5 to 10 years | Longer periods usually raise value |
Common mistakes founders make
- Commissioning the report too early. For tax purposes, the report can be up to 90 days old at allotment. A report from four months before closing may need redoing.
- One report for the wrong purpose. A Companies Act report may not satisfy FEMA for foreign investors unless the valuer addresses both.
- No ESOP valuation. When employees exercise options, you need a fair market value on the exercise date for tax deduction. See The ESOP Top-Up Trap.
- Secondary sales below the report. Founders or early angels selling at a discount to incoming investors can trigger tax on buyer and seller. See Angel Tax Is Gone.
- Mixing up price per share and valuation. The report values per share, on a stated share count. If your ESOP pool or conversions change the count, the numbers must match the SSA.
Case study
The report that did not match the round
Personal care brand, ₹12 Cr seed round, lead investor a US fund investing directly
Situation
The company secretary commissioned a registered valuer's report under the Companies Act in March. The round closed in July.
What was missed
The report was too old for the tax rules, did not address FEMA for the US investor, and valued shares on a pre-ESOP share count, while the SSA included a new pool.
What changed
A firm that was both a registered valuer and a SEBI merchant banker issued a fresh report covering the Companies Act, FEMA and Rule 11UA, on the post-pool fully diluted share count, dated two weeks before allotment.
Outcome
The allotment went through with a clean FC-GPR filing. The first report's fee was wasted, and closing slipped by three weeks.
The lesson
Brief the valuer on every purpose, every investor type and the final share count, and time the report for the closing date.
Illustrative case. Figures are representative of patterns in Indian rounds, not a specific company.
Related: How Investors Really Value Consumer Brands. About to close a round? Talk to us about the closing checklist.
Read next: CCPS vs CCD vs convertible notes and the pre-Series A playbook. Preparing to raise? See how our pre-Series A fundraising support works.
Questions founders ask us
Does a valuation report decide my startup's valuation?
No. The investor and founder agree the price. The report confirms it is at or above fair value under the relevant law.
Who can issue a valuation report for a startup fundraise in India?
An IBBI-registered valuer for Companies Act purposes; a chartered accountant, SEBI-registered merchant banker or practising cost accountant for FEMA; and, for DCF under Rule 11UA, a merchant banker.
What valuation method is used for startups in India?
Mostly discounted cash flow. For non-resident investors, Rule 11UA also allows comparable company multiples, probability weighted expected return, option pricing, milestone analysis and replacement cost.
How old can a valuation report be?
Under the income-tax rules, a merchant banker's report can be dated up to 90 days before the share issue. Aim for a report dated close to allotment for all purposes.
Do I need a valuation report now that angel tax is gone?
Yes. Company law still requires a valuation for preferential allotments, FEMA requires fair value for non-resident investors, and ESOP and secondary transactions need tax valuations.
About the author
Written by the Alphamark Ventures team, a fundraising advisory firm helping founders raise seed, angel and pre-Series A rounds, with a focus on consumer, consumer tech and consumer AI. Figures are as of the date shown and are for general information; this is not legal, tax or investment advice.
Raising in the next 6 months?
We typically work with brands doing ₹30L+ in monthly revenue raising ₹1 Cr to ₹15 Cr. Share your deck and numbers.
How our pre-series a rounds support worksKeep reading
Why Two D2C Brands at ₹20 Cr Revenue Raise at 2x and 6x: How Investors Really Value Consumer Brands in 2026
Revenue multiples for Indian consumer brands range from 1.5x to 8x at the same revenue. Here is the math investors use to decide where you land, and the five numbers that move you from one end to the other.
The ESOP Top-Up Trap: How a 10% Pool Quietly Turns a ₹40 Cr Valuation Into ₹36 Cr, and How to Size It Properly
An investor asks for a 10% ESOP pool "in the pre-money". The headline valuation stays ₹40 Cr. Your effective valuation drops to ₹36 Cr. How the option pool shuffle works, how to size a pool from a hiring plan, and the Indian rules.
India, Delaware or Singapore in 2026? The Real Cost of Flipping, Reverse Flipping, and Why Most Founders Now Cannot Flip at All
In 2021 a Delaware parent was the default for funded Indian startups. By 2026 many are paying crores to come home. What a flip really costs, why the reverse flip wave started, and how to decide at seed.