Pre-money and Post-money valuation is a jargon frequently used by VCs and entrepreneurs.

In layman’s terms, Pre-money refers to a company’s value before it receives outside financing or the latest round of financing, while post-money refers to its value after it gets outside funds or its latest capital injection. Pre-money valuation refers to the value of a company not including external funding or the latest round of funding. Post-money valuation includes outside financing or the latest injection. It is important to know which is being referred to, as they are critical concepts in valuation.

In this blog I will try to explain the concept of pre-money valuation and we will also do the post money valuation of snap deal.

Going forward, generally the discounted cash flow approach is used for calculating the pre-money valuation of a company.

Pre-money valuation is also calculated by multiplying these two:

i. The price per share in the companyâ€™s preferred stock

ii. The companyâ€™s fully diluted capital prior to financing

### Example

Scenario before fund raising

Common stock outstanding – 400000

Option pool shares issuable pursuant to outstanding options + other shares reserved for issuance under companyâ€™s option plan(s) – 400000

Series A funding – 200000

Pre-financing fully diluted capital – 1000000

If the company is contemplating Series B funding at \$1 per share as sale price

Pre-money valuation of the company = 1000000*\$1 = \$1000000

If the company sold 200000 shares of series B funding then money raised = 200000*\$1 = \$200000

Scenario after fund raising

Common stock outstanding – 400000

Option pool shares issuable pursuant to outstanding options + other shares reserved for issuance under companyâ€™s option plan(s) – 400000

Series A funding – 200000

Series B funding – 200000

Post financing fully diluted capital – 1200000

Post money valuation = 1200000*\$1 = \$1200000

Post money valuation is also calculated by adding the pre-money valuation to capital raised

Post money valuation = \$1000000 + \$200000 = \$1200000

### Snap deal Post money valuation

These are the various funding that snap deal has received till now

 Date Round Funded By Amount in \$ million Jan 2011 1 Nexus VC and Indo-US 12 Jan 2011 2 Bessemer VC along with Nexus and Indo-US 45 Jun 2013 3 E bay 50 Feb 2014 3 E bay 133 May 2014 5 Blackrock, Temasek 100

(Estimation by Wall street journal):

Post money valuation after round 5 funding = \$1000 million

Investment in round 5 = \$100 million

Pre-money valuation = \$1000 million – \$100 million = \$900 million

Post money valuation of Snap deal after round 4 in Feb 2014 = \$750 million

Valuation Jump in 3 months = \$900 million – \$750 million = \$150 million = 20% jump.

And as per the CEO Kunal Bahl, Snapdeal has grown up by 500% in past 12 months and they are expected to hit 1 billion USD (Gross merchandise value) this year itself.(Source Trak.in)

### Basic formulae

Post-money Valuation = New Investment*(Total post investment shares outstanding / shares issued for new investment)

Pre-money Valuation = Post-money Valuation â€“ New Investment