Comments on: What is a Pre-money and Post-money Valuation?

By: RJ

RJ — Thu, 31 Dec 2009 09:14:31 +0000

Janet,

Value the company at what you think it’s worth, just remember that doesn’t mean the investors will agree. Simple example, if you need $300k and your willing to give say 30% equity for that investment your companies post-money valuation would be $1MM. Pre-money $700k.

If you want to give 40% use $300k/.4 which equals $750k post-money valuation.

Make sense?

By: Janet

Janet — Mon, 31 Aug 2009 21:46:18 +0000

Ryan,
I’m still struggling with this concept a bit and need some help. I am in the process of starting a company and I seek investors. I currently guage my start-up expenses (including working capital) to be $250-300K. I seek to raise this money through investors. How would I value the company and what % can I offer investors?

By: Ryan Roberts

Ryan Roberts — Thu, 05 Feb 2009 05:37:26 +0000

Capital is capital. The investment itself isn’t issued as pre or post, but you can subtract the investment to determine the pre and post valuation.

By: Jon

Jon — Tue, 27 Jan 2009 22:13:23 +0000

When we issue the subscription agreement, is the cost per unit/share pre-money or post-money.

For instance, ours reads “Subject to the terms and conditions hereof and the provisions of the Partnership Agreement, I hereby irrevocably agree to purchase the number of Units set forth on page 7 of this Subscription Agreement (“Agreement”) for $1,000 per Unit.”

For years I have been calculating this as pre-money but then realized I had no idea which hat I pulled that assumption.

By: Jim

Jim — Thu, 14 Aug 2008 19:16:57 +0000

Thanks. I think this works, in some regards, if the stock is issued after initial seed funding, or as a result of it. For example:

Pre-seed angels invest $15k for 15% of the company, which would value it at $100k (= 15k/0.15)

Then issue 1,000,000 original shares at a value of $0.01 per share so that now my angel owns 150,000 shares (and 15%) and I own 850,000 (85%).

THEN, if we went to YC (Y Combinator) for add’l funding, say $20k, it would look like:

Prevalue = $100,000
YC investment = $20,000

Post value = 100,000 + 20,000 = 120,000.

YC ownership 20/120 = 17% current ownership.
Pre-seed investm’t = 15/120 = 12.5%
My ownership interest = 85/120 = 71%

For the 20k investment by YC, 200,000 new shares would have to be issued, which then dilutes everyone’s ownership.

I think that’s right.

By: Ryan Roberts

Ryan Roberts — Thu, 14 Aug 2008 06:45:22 +0000

Jim,

I re-wrote the post to (hopefully) make it more clear. I think your calculations look good.

By: Jim

Jim — Fri, 08 Aug 2008 22:26:04 +0000

So, if an angel wants 5% of my company, assuming I had one.

And that angel is willing to invest $15,000 for that 5%.

Working backwards to find post-money value…

Given, post money = pre-money + investment.

Then,

Post-money = $300,000
Pre-Money = $285,000
Investment = $15,000

So, angel’s 15,000 investment just bought him 5% of the company (15 / 300).

Then Pre-money value = price of shares * value of shares before financing.
For 500,000 shares, $285,000 = $0.57 * 500,000, or
For 1,000,000 shares, $285,000 = $0.28 * 1,000,000

Does that look right?

So, by an angel saying they are willing to invest $15k for 5% into my imaginary company, that angel has just defined a post-money value (and pre-value) for my firm.

By extension, can my wife invest $500 in my company for a post-money 0.5% interest, that would cause my post-money value to = $100,000 ( = 500 / 0.5)? I would own 99.5%, or $99,500 (pre-money) with no cash invested, and she would own 0.5% with $500 cash invested?