What is a pre-money and post-money valuation?

2Post-money and pre-money valuation concepts are fundament concepts of financing of companies. Here valuation means how much the company worth. Both concepts are important because it has to do with how much your company need to sell in case of equity financing, meaning the shares you need to sell to raise money from the investors. The concept of pre-money and post-money valuation has to do with how much my company worth before funding and how much the company worth after funding.

So pre-money is going to be one thing and post-money valuation is going to be the other. Time separates the both states. Let us put it this way, the field of business is always busy with buying and selling stuffs. In terms of putting shares of the company in the stock market, this buying and selling happen constantly. Now, pre-money valuation clearly indicates the company’s total value before it puts its share in the share market to get money from investors.

For example, you might have a company which worth $1 million before you put its share up in the share market for raising fund. This state is indicated by pre-money valuation system. Suppose, you have managed to raise $500 thousand by selling shares. Now the worth of your company stands at $1.5 million which is $500 thousand more than previous value. In this case the shareholders would have 33% share of the company.

Again, if you can manage to raise $1 million from the shareholders by putting the shares of the company on share market, the total value of the company would be in total $2 million. That is the post-money valuation. In this particular case you are owning 50% of the company. This is the basic idea of pre-money and post-money valuation.

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top