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Get Your Practical Guide To Startup Fundraising How To Plan Your Fundraising? If you’re serious about scaling, chances are you’ll need to raise capital. In this document, we’ll take you through the essential steps to take, whether you’re taking a venture capitalist (VC) route to fundraising or crowdfunding. VC funding vs crowdfunding? VC fundraising: Typically […]

When a startup receives investment from outside investors like venture capitalists and angel investors, two equity valuations are essential. These are the pre-money, and post-money valuations that refer to the company’s value before and after an investment are done. These valuations determine how much ownership external investors receive when they make a cash investment into a company. The post-money valuation is always greater than the pre-money valuation as it is the value after a cash injection is made.

Valuation refers to the process of determining a company’s present value. It is an important figure in finance as it is needed or used in investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability. Valuations can be done on assets like investments in marketable securities such as companies’ shares and related rights, business enterprises, or intangible assets such as patents, data, and trademarks or on liabilities such as bonds issued by a company. The valuation described is the company’s enterprise value (EV) which is the value of the entire business without considering its capital structure. It’s important to point out that a company’s enterprise value is unaffected by a round of funding. So while a company’s equity value increases by the amount of cash, its EV remains constant.  At this juncture, it is crucial to differentiate the terms pre-money and post-money valuation, which are often heard concerning startups. Pre-money and post-money valuations used in private equity or venture capital industries are related to the company’s equity value. These figures are used by outside investors such as venture capitalists and angel investors in their investment decisions. In this article we will be looking at pre-money valuation calculators and its related terms.