Your 500 acres

Over the past few days my friend and I had been discussing valuation models as her company was exploring the possibility of raising funds. This morning I was mulling over various inputs that go into a valuation 8212; discounted cash flows, profitability, future earning streams, scalability, topline growth and so on 8212; and I thought that all these issues were primarily important for the seller who wants to exit a business. For the buyer what is most important is what he can do with the business he is buying 8212; how critical it is to the larger gameplan, the bigger picture he has in his mind.

If a company owns 500 acres near a national highway for which it paid Rs 2 lakh per acre, but the land does not have approach from the highway, the business prospects of the Rs 10 crore invested in the land are doomed. But if the company gets even one acre of land touching the highway which gives it connectivity, it is very likely that it will be willing to pay even Rs 20 lakh for that one acre 8212; 10 times the going price. All logic of market price, last deal, similar sales and so on are insignificant as only the company buying the land knows of its worth.

When I shared this idea with my friend, she brushed my 8220;brilliant idea8221; aside saying that one has to be realistic for valuations. As I nursed my fallen ego, I suddenly felt that there was more to this idea 8212; that it held true not merely for business but also for life. I have friends 8212; one of whom is a medical doctor and another who has a doctorate in linguistics 8212; who left very successful careers in Europe. They gave up everything to set up Mirambika, a small school in Delhi.

I know of another couple who left their highly-paid corporate jobs and went up to live in the mountains when their child was born to ensure he was not exposed to the hustle bustle of the city in his early years. I am sure you8217;ve met such adventurers too. All these people knew their 500 acres and bought their one last acre for making that important connection.

I8217;m still trying to grapple with my 500 acres and am far, far away from that last acre that will put it all together.