The regional OTT app Stage wants to raise $15M in its Series B round. Stage creates video content in two Indian regional languages – Rajasthani and Haryanvi.
It's an interesting space that's bound to take off in the future. Indians, especially from smaller towns and villages, love watching content in their language. They find it more relatable unlike people living in big cities who love binging on Netflix and other international content.
India has 820 million active internet users. More than half of them come from the rural areas. This is the target audience of regional OTT startups like Stage. This number will grow in the future as high-speed internet becomes even more widespread.
Stage operates in a large market (also known as TAM) that VCs love. It already has 1.2 million monthly users that are growing at 20% every month. So, it has PMF in its target geographies and high growth – two signs VCs look at before committing big bucks.
What should be the valuation?
I checked Stage's website. Their subscription plan is Rs 199 for 3 months which comes out to around 80 cents per month. At 1.2 million monthly users, this translates to around $1M MRR (Monthly Revenue Run Rate).
ARR (Annual Revenue Run Rate) = 12 x MRR = $12M
At $12M ARR, an OTT company (a type of B2C SaaS) will get a 4-5x valuation multiple. Investors would also find Stage attractive because of its high user growth. 20% monthly growth is phenomenal.
VCs love growth.
So, if we assume a 5X ARR multiple as pre-money valuation, we are talking about $60M pre-money. If they raise $15M Venture Capital at a $60M pre-money valuation, the post-money valuation becomes $75M ($60M + $15M).
As per the news reports, Stage is targeting a $80-100M post-money valuation which is in the same range. If their revenues continue to increase by 20% every month, they can easily raise $15M at a $100M post-money valuation in a few months.
Overall, it's a good business in a high-growth industry. On the flip side, it requires a lot of cash before it can become profitable. In any OTT platform, a lot of money goes towards creating high-quality local language content for their target group (TG). That takes time and requires expertise in running a production house.
Creating any video content is expensive, and it takes time to build expertise. Netflix and Amazon Prime have learnt that. It's a long game.
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