​Startup Valuation: Pre-Money v/s Post-Money
Background
The biggest dilemma for a startup before approaching investors is about valuating their business. It creates confusions and risks of under-valuating or over-valuating your enterprise.
Investors may almost always ask for pre/post money valuation so lets try to understand the difference between Pre-money valuation and Post Money Valuation.
A pre-money valuation is a term widely used in private equity or venture capital funding, referring to the valuation of a startup prior to an investment while Post-money valuation is the value of a company after an investment has been made.
Definition
Pre-money valuation refers to the value of a company not including latest external round of funding.
Post-money valuation means Pre-money valuation plus latest funding.
Example
Mr. A and Mr. B incorporated a private limited company and invested INR 5,00,000 each:
|
Shareholders |
No. of Shares |
Amount |
Percentage shareholding |
|
A |
50,000 |
500,000 |
50% |
|
B |
50,000 |
500,000 |
50% |
|
Total |
1,00,000 |
10,00,000 |
100% |
Mr. C who is angel investor valued the company at a valuation of INR 1 crore pre-money and decided to invest INR 25 Lakhs.
Calculation of the share price will be: INR 1,00,00,000 (Pre-money)/1,00,000 (existing shares) = INR 100 per share
Mr. C will get 25,000 shares (25,00,000/100).
|
Shareholders |
No. of Shares |
Amount |
Percentage shareholding |
|
Mr.A |
50,000 |
500,000 |
40% |
|
Mr. B |
50,000 |
500,000 |
40% |
|
Mr. C (Investor) |
25,000 |
25,00,000 |
20% |
|
Total |
1,25,000 |
35,00,000 |
100% |
Post-money valuation of the company will be:
|
Pre-Money Valuation |
1,00,00,000 |
|
Investment |
25,00,000 |
|
Post-money Valuation |
1,25,00,000 |
Price per share will remain same post money as well = 1,25,00,000/1,25,000 = INR 100 per share.
Conclusion:
If any investor ask for valuation, startup should mention INR 1 crore as pre-money valuation and INR 1.25 post money valuation.
In case any query, feel free to write at amit@startupbuddy.co.in