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 company’s preferred stock
ii. The company’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 company’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 company’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 – New Investment |
|---|
Related links you will like:
Comments