Case 081Early-stage valuationCore
Price Bimavik Insurtech's Series A from comparable rounds. Three recent rounds were done at 25x, 18x and 12x ARR for companies growing 200%, 120% and 70%. Bimavik has Rs 6 crore of ARR growing 150%. Fit the multiple to growth and name a price range.
1The situation
Bimavik Insurtech sells health and motor policies to small businesses through a software platform that handles quotes, claims tracking and renewals. It earns platform fees from businesses and a commission from insurers on each policy. It reports Rs 6 crore of annual recurring revenue (ARR), up 150% on a year ago, and is raising its Series A.
Your associate has pulled three recent Series A or B rounds in software for financial services. Comp 1 raised at 25x ARR while growing 200%. Comp 2 raised at 18x ARR growing 120%. Comp 3 raised at 12x ARR growing 70%. All three are similar in size to Bimavik and sell to businesses.
2Your task
Fit the ARR multiple to growth, place Bimavik on it, and name the valuation range you would take to the partners.
Quick check
Before fitting anything: what multiple does the plain average of the three comps give?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Fitting multiple to growth puts Bimavik at about 20x ARR, a range of Rs 110 to 130 crore. The three comps lie close to a straight line that adds about one turn of ARR for every 10 points of growth. At 150% the line reads 20.3x, about Rs 122 crore. I would take Rs 120 crore as the point and widen to 18.3x to 21.7x because three rounds is a thin sample and insurtech ARR needs checking.
Step 1Why fit the multiple to growth instead of averaging the comps?
Think of pricing a second-hand car. You would not average the prices of a two-year-old and a ten-year-old model and call that the price of a five-year-old one; you would see how price falls with age and read off five years. Startup multiples work the same way: investors pay more ARR multiple for faster growth, so the useful comparison is the line through the comps, not their mean. The plain average here is 18.3x, which values Bimavik at Rs 110 crore. That number is the price of a 130% grower, because 130% is the comps' average growth.
Step 2What line do the three rounds draw?
Fit a straight line by least squares through the three points. The slope comes out at 0.0988, so every 10 points of extra growth adds about 0.99 turns of ARR, and the line passes through 18.3x at 130% growth. The comps sit close to it: Comp 1 is 0.25x below, Comp 2 0.66x above and Comp 3 0.40x below. A line that fits this tightly tells you the market really is pricing these companies mostly on growth.
| m | round price divided by ARR |
| g | ARR growth over the last twelve months, in per cent |
| 0.0988 | turns of ARR added per point of growth, from the least-squares fit |
Check the line another way. Bimavik sits between Comp 2 at 120% and Comp 1 at 200%. Straight interpolation between just those two gives 18x plus three-eighths of the 7-turn gap, 20.6x. Two methods that agree near 20x are worth more than one precise-looking number.
Step 3Why a range, and why that range?
Three data points is a thin sample: move one comp by a few turns and the slope shifts. The comps already sit up to 0.66x off the line, and Bimavik is small, so its growth rate on a Rs 6 crore base will swing more than theirs. I would widen to about 1.7 turns either side of 20x, which is 18.3x to 21.7x, or Rs 110 to 130 crore, with Rs 120 crore as the point. For a sense of the downside, if Bimavik's growth slips to 100% by the time the round closes, the line reads 15.4x, about Rs 92 crore. Growth is the variable the price hangs on, so diligence the growth before you argue about the multiple.
| Method | Multiple | Value, Rs crore |
|---|---|---|
| Plain average of three comps | 18.3x | 110 |
| Interpolate Comp 2 and Comp 1 | 20.6x | 124 |
| Least-squares line at 150% | 20.3x | 122 |
| Line if growth slips to 100% | 15.4x | 92 |
| Range taken to partners | 18.3x to 21.7x | 110 to 130 |
Step 4What would make you distrust the comps for an insurtech?
The multiple only travels if the ARR means the same thing. At an insurtech, part of the Rs 6 crore may be commission on one-year policies, which recurs only if the policy renews and the insurer keeps paying the same rate. Split ARR into platform fees and commission and ask for the renewal rate on last year's policies. If half the ARR is commission with a 60% renewal rate, that half deserves a lower multiple than the software comps, and the range moves down. Say this limitation out loud: comps price what the market paid for similar companies, not what this one is worth, and three rounds in a fast market can be out of date within a quarter.
Where candidates lose it
The common miss is averaging the three multiples. That prices Bimavik as a 130% grower and lands at the bottom of the fair range, which a founder with competing term sheets will notice at once.
The second is the opposite: matching Bimavik to its nearest comp, Comp 1 at 25x, because both are fast growers. Bimavik grows 50 points slower than Comp 1, and that gap is worth about five turns of ARR.
What the interviewer asks next
- A fourth comp appears at 30x ARR growing 110%. What does it do to your line, and would you keep it?
- Half of Bimavik's ARR is insurer commission renewing at 60%. How would you adjust the range?
- Would you rather fit the multiple to next year's growth or last year's? Why?
- How would net revenue retention change which comps you trust?
Company names and figures are illustrative.