 |
del.icio.us |
 |
Digg |
 |
Furl |
 |
|
 |
Rojo |
| Add to OnlyWire |
 |
This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed. (July 2008) |
 |
All or part of this article may be confusing or unclear. Please help clarify the article. Suggestions may be on the talk page. (July 2008) |
A pre-money valuation is a term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing.
External investors, such as venture capitalists and angel investors will use a pre-money valuation to determine how much equity to demand in return for their cash injection to an entrepreneur and his or her startup company. This is calculated on a fully diluted basis.
Ususally, a company receives many rounds of financing rather than a big lump sum in order to decrease the risk for investors. Pre- and post-money valuation concepts apply to each round.
Example
Shareholders of company X own 100 shares, which is 100% of equity. If an investor makes a $10 million investment into a company X in return for 20 newly issued shares, the implied post-money valuation is $10 million*(120/20)=$60 million. To calculate the pre-money valuation, the amount of the investment is subtracted from the post-money valuation. In this case, it is $50 million. The initial shareholders dilute their ownership to 100/120=83.33%.
As a second round, an investor agrees to make a $20 million for 30 newly issued shares. Post-money valuation is $20 million*(150/30)=$100 million. The pre-money valuation is $100-$20=$80 million. The initial shareholders further dilute their ownership to 100/150=66.67%.
See also
External links
|
|||||||||||||||||||||||||||||||
