The concept of pre-money v post-money valuation is one that all angel investors should understand before investing in a syndicate. Valuations possess the capacity to either make or break an investment, and investors need to have a thorough comprehension of this intricate topic. Pre-money valuations are based on the company’s value before any investments are made while post-money valuations take into account new investments.
We will explore both types of valuations as well as how they compare, how equity values can be calculated with pre-money scenarios, and what you need to consider when negotiating these deals with potential investors. So let's learn all we can about pre-money v post-money valuation.
Ready for your next investment? Gain exclusive access to the best companies that Angel School has vetted. Our investors see success through our excellent deal flow and world-class diligence. We source hundreds of companies and invest selectively, with a fully transparent process. So join our growing global community, and see what a diversified deal flow and a talent for choosing good deals can do for you.
What is Pre-Money Valuation
Pre-money valuation is a method used to determine the value of a company before any additional investment. It is calculated by taking into account the current assets, liabilities, and prospects of the business.
This number can then be used as a benchmark for potential investors when considering how much they should invest in the company.
How Is It Calculated?
The pre-money valuation of a company is typically determined by looking at its historical financial performance, market conditions, competitive landscape, and other factors that could affect its future success or failure.
The calculation also takes into account any existing debt obligations or liabilities that need to be paid off before new investments are made. Additionally, it considers any intellectual property rights associated with the business such as patents or trademarks which may add value to an investor’s portfolio.
Pre-money v Post-money Valuation
Post-money valuation refers to the total value of a company after all investments have been made. This includes both pre-existing assets and newly acquired capital from investors.
In contrast, pre-money valuation only accounts for existing assets without factoring in new investments from outside sources.
As such, post-money valuations tend to be higher than their pre-money counterparts since they include additional funds raised through external sources like venture capitalists or angel investors.
Post-Money Valuation
A post-money valuation is a method of assessing the value of a company after an investment has been made. It is used to determine how much equity investors will receive in exchange for their capital.
This type of valuation takes into account both the amount invested and the pre-existing value of the company, allowing investors to make informed decisions about their investments. The post-money valuation includes not only any money that was just injected into the business but also its existing assets, liabilities, and other factors that contribute to its overall worth.
By considering all these elements, post-money valuations provide potential investors with an accurate picture of what they can expect in return for their investment.
How Is It Calculated?
The calculation for post-money valuations involves several steps:
Firstly, determining the pre-investment enterprise value (EV) by subtracting any outstanding debt from total assets.
Secondly, adding up all external investments made since EV was calculated.
Thirdly, dividing this sum by fully diluted shares outstanding (FDSO).
Finally, multiplying FDSO by the current share price gives you your post-money evaluation figure.
For example: If Company A had $1 million in assets and no debt before receiving $500k from an investor, then its pre-money EV would be $1 million ($1M - 0).
After receiving this injection, it now has an additional $500k. Its post-money EV would be 1 + 5001000 = 1.5M. When multiplied by the current share price gives us our final figure for post-money evaluation. Say, 10 cents per share giving us 150000 x 0.10 = 150K as our final answer.
Pre-money v Post-money Valuation
Pre-money valuation refers to assessing a company’s worth before any external investment is made. Post-money valuation looks at how much equity shareholders will receive based on both existing values plus incoming funds from outside sources such as venture capitalists or angel investors.
Pre-money evaluations are useful when considering whether or not investing in a particular business makes sense. Post-money valuations give potential stakeholders more insight into what kind of returns they can expect once they have committed capital toward the said enterprise.
Pre-money v Post-money Valuation
Comparing pre-money v post-money valuation allows investors to negotiate better terms, such as higher ownership percentages or lower interest rates on loans. It also affords them greater autonomy concerning their investments, enabling them to determine how much capital to inject and when it is opportune to withdraw from the agreement.
However, pre-money valuations do not take into account any additional investments that may have been made since the initial investment was made, so investors need to consider this when making decisions about their investments.
The post-money valuation is a way to gauge the worth of an enterprise after investments have been made in it, enabling clarity on each investor's return and potential growth prospects are given alterations in market conditions. This approach provides greater transparency regarding each investor's return on investment (ROI) because it takes into account all current and future investments that have been made in the company since its inception.
Post-money valuations additionally provide insight into a company's potential future growth prospects, accounting for changes in the marketplace and other external elements that may impact its success or failure over time. Conversely, post-money valuations do not consider any alterations in market dynamics or potential future development prospects since the first investment was made. Thus, investors should be cognizant of this deficiency when evaluating whether to invest in a given enterprise.
Comparing pre and post-money valuations is essential for angel investors to understand the potential returns of their investments. By calculating the value of equity in a pre-money valuation scenario, investors can determine their ownership percentage and evaluate the investment opportunity more accurately.
Conclusion
The pre-money v post-money valuation is an important factor to consider when building and scaling an angel investment syndicate. Realizing the contrast between pre-money and post-money evaluations is fundamental for business visionaries, just as figuring out how to ascertain value in a pre-cash circumstance.
Navigating pre and post-money valuations with investors can be a complex endeavor. But by arming yourself with the knowledge of their respective elements and conducting thorough research you'll be able to arrive at mutually beneficial conclusions.
About AngelSchool.vc
AngelSchool.vc is a Fellowship program dedicated to helping Angel Investors build syndicates. We give Program Fellows a syndicate blueprint in just 8 weeks.
After that, they’re invited to join our Investment Committee (IC) to get real deal experience AND earn carried interest. Apply for the next cohort of our Syndicate Program here.
The AngelSchool.vc Syndicate is backed by 1000+ LPs and deploys $MNs annually. Subscribe here for exclusive dealflow.
