Pre-Money & Post-Money Valuation Calculator For Startups
When raising an equity round of funding for your startup you need to be aware of the difference between the pre-money and post-money valuation.
With our pre-money / post-money valuation calculator simply enter any two figures (i.e. investment amount and pre-money valuation) and the other fields will automatically calculate.
What Does The Term Pre-Money Valuation Mean?
If you hear the term "pre-money valuation" it simply refers to the valuation of a company prior to the actual receipt of any capital/investment being made.
Pre-Money Valuation Example
For example, if an investor is going to invest $100,000 into your startup at a $1,000,000 pre-money valuation, then this is the "value" of the company prior to the addition of that $100,000 investment.
Once the $100,000 investment has been made then it is "applied" to the valuation of the company. I.e. $1,000,000 initial value + the $100,000 = $1,100,000. This is the post-money valuation as it combines the initial value of the company and adds the investment amount on top as that cash is now an asset of the company.
What Does The Term Post-Money Valuation Mean?
Post Money Valuation
The Post Money Valuation of a startup is fairly easy to calculate. It is the value of the company after the investment has been made. Therefore it takes into account the "value" of the cash contribution made by investors.
Post Money Valuation Example
There are two ways to calculate the post-money valuation of a startup.
1. You can simply take the pre-money valuation and add the value of the investment to get the post-money valuation
2. If you don't know the pre-money or post-money valuation but know the amount invested and number of shares issued in return for that investment then you can divide the investment by the number of shares received. Following this you then take the value of the shares and multiply it by the total number of shares issued in the company post-investment.
For example if I invest $100,000 and receive 50,000 shares then I know that the cost per share is $2 (100,000 / 50,000 = 2). If I then know that the company has 1,050,000 shares issued following my investment then 1,050,000 x $2 = our post-money valuation of $2,100,000.
Why Understanding The Difference Between Pre-Money & Post-Money Valuations Matters
When negotiating a potential investment into your startup it is important to know the difference between the pre-money and post-money valuation.
This is important because the difference between the two figures can have a major impact on the amount of dilution you face when raising that round of funding.
For example if you are told by an investor that they want to invest $200,000 into your company at a $2 million valuation that can mean one of two outcomes for you.
If they are referring to the $2 million as the pre-money valuation then they will control 9.09% of the company following the investment. If on the other hand they are referring to a post money valuation, then they will control 10% of the company.
It might not seem like a big difference with these example numbers, but try working out the difference when the investment being made is millions of dollars. That's why it is also important to clearly articulate if the valuation is pre or post money in all of your correspondence.
Made With In By Paul Towers
For Aussie Startups & Founders
Hey There! I'm Paul, a 3x Entrepreneur and the Founder & CEO of Task Pigeon. I'm also a passionate supporter of the Aussie Startup Ecosystem. In addition to Task Pigeon I also mentor at the University of Sydney, run the Daily Startup Soda Newsletter and Media site and just generally try and help out other startups and founders.