Table of Contents
What is the difference between pre-money valuation and post money valuation?
Pre-money valuation refers to the value of a company not including external funding or the latest round of funding. Post-money valuation includes outside financing or the latest capital injection. It is important to know which is being referred to, as they are critical concepts in valuation.
Why is post money valuation important?
The difference between the pre money valuation of a company and the post money valuation of a company matters because it ultimately determines the equity share that investors are entitled to after the financing round is over.
What is post investment valuation?
Post-money valuation refers to the approximate market value given to a start-up after a round of financing from venture capitalists or angel investors have been completed. The post-money valuation is equal to the pre-money valuation plus the amount of any new equity received from outside investors.
Why is 409A valuation lower?
With a better idea in what common stock and preferred stock are, you need to know that 409A valuations consider preferred stock to have the same value as the common stock, which is why the value taken is a lower value.
Is post money equity or enterprise value?
For a venture-backed startup raising money for the first time, the Post-Money Valuation represents the Equity Value of the business based on growth expectations and operating margins. The Pre-Money Valuation reflects the Enterprise Value of the business today.
What is the post-money valuation of a company?
If the VC owned 20\% for a $1 million investment, then the post-money valuation of the company at the time of the initial investment was $5 million. As you can see, investors use the post-money valuation to estimate the price an investment must command when they exit or sell the company.
What are the key terms in a business valuation discussion?
When you enter into a business valuation discussion with investors, make sure that you understand the key terms. The pre-money valuation and the amount invested determine the investor’s ownership percentage following the investment.
What do investors need to know about business valuations?
When you enter into a business valuation discussion with investors, ensure you understand the key terms. The pre-money valuation and the amount invested determine the investor’s ownership percentage following the investment.
What is the relationship between post money equity and enterprise value?
While the company’s post money equity value increases by the value of cash received, the enterprise value remains constant. When undergoing a round of financing, the original shareholders (pre-transaction) will have their proportional ownership diluted as a result of issuing new shares.