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​Startup Valuation: Pre-Money v/s Post-Money



Author: Amit Singal
Published On:January 3, 2018

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.

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