You can calculate both before and post-money valuation with our money valuation calculator. It is a simple tool to use; all you have to do is enter two necessary variables for the computation procedure. Specifically, the investment amount and the investor’s equity stake. With these two factors entered, our small gadget would calculate your company’s pre and post-money valuation based on the pre and post-money valuation method. The term of value differs between pre and post-money. Both pre-money and post-money are company valuation measures that are crucial in determining a firm’s worth.

Pre-Money Valuation Definition

Before it goes public or obtains additional investments such as external finance or financing, the worth of a firm is to as a pre-money valuation. Simply put, a company’s pre-money valuation is the amount of money it is worth before any investment is made. Venture capitalists and other investors who aren’t immediately elaborating in a firm use the phrase “pre-money,” which we also know as “pre-money.” This amount allows them to calculate their share of the firm depending on their investment.

The valuation of a firm before any rounds of funding we know as pre-money, and it provides investors with an estimate of the company’s existing value. It isn’t, however, a static figure. Thus it can alter. This is because the valuation is official before each round of funding, whether private or public. We can calculate pre-money right before a firm is on the list on the stock exchange. You may also utilize the pre-money value before investing in a firm with seed, angel, or venture capital.

A potential investor may suggest a value for the pre-money valuation. They might use the figure to determine how much money they will provide and how much ownership they demand in return. However, the company’s leadership may reject pre-valuations suggested by others until they achieve a figure that corresponds to the company’s goals.

Post-Money Valuation Definition

A company’s assessed worth after outside funding and/or capital injections are added to its balance sheet we know as post-money valuation. Allocation of the market value assigned to a start-up after a round of funding from venture capitalists or angel investors is finished, referred to as post-money valuation. Pre-money values are those that are set on before these funds are put up. We multiply the pre-money valuation by the amount of additional equity obtained from outside investors to arrive at the post-money valuation.

We use the pre-money valuations by investors such as venture capitalists and angel investors to assess the amount of stock they need to get in exchange for any capital infusion. For example, assume a corporation has a pre-money valuation of $100 million. A venture capitalist invests $25 million in the firm, resulting in a $125 million post-money value (the pre-money valuation of $100 million-plus the investor’s $25 million). In the most basic situation, the investor would own a 20% stake in the firm because $25 million is one-fifth of the $125 million post-money valuations.

The scenario above presupposes that the venture investor and the entrepreneur completely agree on the pre-and post-money values. In actuality, a lot of negotiating takes place, especially when businesses are tiny and have few assets or intellectual property. Private firms get more control over the conditions of their round fundraising values. As they grow, although not all reach this position.

Pre-Money vs. Post-Money

The worth of a firm before external finance or the most recent fundraising round is referred to as pre-money valuation. We best define pre-money as the estimated value of a start-up before it receives any funding. This valuation informs investors about the company’s present value and the value of each issued share.

Post-money, on the other hand, refers to the value of a corporation after it has received funds and made investments. Outside funding or the most recent capital infusion includes the post-money value. It’s crucial to understand which notions are we discussing because they’re both significant in determining a company’s value.

How to calculate pre-money valuation?

Remember, the pre-money value of a firm occurs before it receives any cash. But this amount provides investors a snapshot of what the firm might be worth today. So calculating the pre-money value isn’t difficult. But it does take one more step—and that’s just after you figure out the post-money worth. Here’s how you do it:

Pre-money valuation = post-money valuation – investment amount

How to calculate post-money valuation?

It’s fairly straightforward to establish the post-money worth. To do so, use this formula:

Post-money valuation = Investment dollar amount ÷ percent investor receives.