Case 053Investment evaluation and pitchesCore
Krishivan AgriTech raises Rs 300 crore at a Rs 3,000 crore pre-money valuation, with revenue growing from Rs 250 crore and an exit at 4x revenue in year 5. What return does the investor make, and what must go right?
1The situation
Krishivan AgriTech sells farm inputs and crop advice to farmers through an app and a network of village agents. It wants Rs 300 crore of growth capital at a pre-money valuation of Rs 3,000 crore. Revenue is Rs 250 crore today.
The management plan has revenue growing 60%, 45%, 35%, 25% and 20% over the next five years. The investor assumes an exit in year 5 at 4x revenue, in line with listed peers, and expects a further 15% dilution from a later round and employee options before exit. Assume no net debt at exit.
2Your task
What money multiple and IRR does the investor make on the management plan, and what has to go right for this to be a good investment?
Quick check
Revenue grows almost fivefold. Roughly what money multiple does the investor make?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
On the management plan the investor makes about 1.21x the money, an IRR of about 4%. Rs 300 crore buys 9.1%, diluted to 7.7%. Revenue reaches about Rs 1,174 crore, worth Rs 4,698 crore at 4x, so the stake is worth about Rs 363 crore. The entry price of 13.2x revenue absorbs nearly all the growth. To make 3x, the company needs about Rs 2,912 crore of revenue at 4x, or a 9.9x exit multiple.
Step 1What does Rs 300 crore actually buy?
A percentage, and the percentage shrinks. Post-money value is pre-money plus the new money, Rs 3,300 crore, so Rs 300 crore buys 9.09%. A later round and an option pool issue 15% more, so the investor ends with 9.09% times 0.85, which is 7.73%. It is like owning one slice of a pizza that keeps being cut into more slices: the pizza can grow and your slice still gets thinner. Write the post-money valuationThe company value right after the new money arrives: the pre-money value plus the cash raised. down before projecting a single rupee of revenue.
Step 2What is the stake worth at exit?
Compound the growth rates: 250 times 1.60, 1.45, 1.35, 1.25 and 1.20 gives Rs 1,174.5 crore. At 4x revenue the company is worth Rs 4,698 crore, and 7.73% of that is Rs 363 crore. Rs 300 crore becomes about Rs 363 crore in five years, 1.21x, an IRR of about 4%: barely better than a bank deposit for an early-stage risk.
| Year | Growth | Revenue, Rs crore |
|---|---|---|
| 0 | 250.0 | |
| 1 | 60% | 400.0 |
| 2 | 45% | 580.0 |
| 3 | 35% | 783.0 |
| 4 | 25% | 978.8 |
| 5 | 20% | 1,174.5 |
Step 3Why does fivefold growth produce so little?
Because the return is three factors multiplied, and two of them are below 1. Revenue grows 4.70x, but the multiple falls from 13.2x to 4.0x, a factor of 0.30, and dilution keeps 0.85 of the stake. 4.70 times 0.30 times 0.85 is 1.21. In growth investing the price you pay is a forecast of the growth, and here the forecast has been paid for in full at entry.
Step 4What must go right, and what would you negotiate?
Turn the target into numbers. For 3x, the stake must be worth Rs 900 crore, so the company must be worth Rs 11,647 crore. That needs revenue of about Rs 2,912 crore at 4x, roughly 63% a year for five years, or a 9.9x exit multiple on the plan's revenue. Neither is the base case. So the qualitative questions that matter are the ones that move those numbers: is the village agent network a moat that sustains growth beyond year 3, and is there a margin story that would earn a software-like multiple rather than a distributor's?
Then negotiate the factor you control. A lower entry valuation, a liquidation preference that returns the Rs 300 crore first in a weak exit, or anti-dilution protection each move the return more than another round of revenue optimism. The honest close is: on these terms it is a pass, and at a pre-money nearer Rs 1,500 crore it becomes worth debating.
Where candidates lose it
Candidates multiply revenue by the exit multiple, compare it with the Rs 3,000 crore valuation, and call the deal a winner because the company grows to Rs 4,700 crore. That ignores that the investor owns under 8% of it and paid Rs 300 crore for that slice.
The second miss is forgetting the further dilution, which quietly costs 15% of the outcome and is the line interviewers include to see who reads the setup.
What the interviewer asks next
- What pre-money valuation would give the investor a 25% IRR on the same plan?
- How would a 1x liquidation preference change the payoff if the exit multiple were 2x?
- Which business model facts would justify a higher exit multiple than 4x revenue?
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Company names and figures are illustrative.