Pre/Post Money valuation models? Specific example to discuss for reference.

Chris Heuer Futurist, serial entrepreneur and change agent

March 24th, 2014

So if you are shooting to give up 20% of the company for $2MM, does that mean you should have a $10MM pre money valuation, or a $10MM post money valuation? I have heard conflicting answers in talking with friends about this. Should be simple enough, just want to confirm with peers...

Scott Milburn Entrepreneurial Senior Executive and Attorney

March 24th, 2014

The above answers that it is $8M pre + $2M investment = $10M post with 20% owned by the investors is correct. Note that the supposedly brilliant investors on Shark Tank always calculate it incorrectly. If someone came to them saying I'm seeking $2M for 20%, they'd say "how can you justify a $10M valuation?" The proper answer would be ""I'm not, I'm justifying an $8M valuation, and your $2M would bring that up to $10M, with $2M in assets sitting in the bank."

Dave Sifry Head of Product at Addapp Corp

March 24th, 2014

Chris,

At those numbers, an $8M Pre-money valuation and a $10M post money valuation will sell 20% of the company to the investors.

If you're really good, try to carve out the option pool after the new money comes in, but savvy investors will force you to have an option pool that is carved out prior to the investment. :)

Chris Hundley Entrepreneur in Residence at Madrona Venture Group

March 25th, 2014

Coming in late, but one of my side projects combines founder equity + valuation/dilution models for fundraising - free for everyone to play around with: http://www.funded.io

Helps to see funding rounds with pre/post money valuations visualized (along with dilution for founders and option pool allocation).

George Arison Making car buying, selling, and ownership a delightful experience

March 24th, 2014

12M post money valuation with 20% will lead to $2.4M in funding.

10M post money valuation with 20% will lead to $2M in funding.

At least thats how I have done these, always.

Michael L Atkinson

March 24th, 2014

Always post Money. So if pre is $8 + raise of $2= $10 post Michael L. Atkinson Chairman (408) 335-6758 Twitter @michaelatkinson Twitter @fohboh

Patrick Ford Software Development Manager at McKesson / RelayHealth

March 24th, 2014

If you want the post money investment of $2mm to equate to 20% of the equity then you would start with an $8mm pre-money valuation. Post money valuation would be $10mm ($8mm + $2mm). Patrick Ford

Phil Strazzulla

March 28th, 2014

I put together a short blog post with an excel model to explain how the equity conversion is calculated. It also lets you play with participation, dividends, and secondary shares (secondary won't increase the post which is important) to see who gets what with a given set of exit outcomes. It has a link to another post I did a few years ago that has an excel with a convertible note structure too. Hopefully it's helpful. http://philstrazzulla.com/2014/03/28/different-vc-structures/

Chris Heuer Futurist, serial entrepreneur and change agent

March 24th, 2014

I planned the cap table for being post seed and already set aside the 20% of the pool with the other cofounders out of it. Better to set expectations early. We didnt focus on percentages with other cofounders or employees, just on shares and potential value. Makes things easier. I learned that with my first startup 20 years ago...

Vadim Oss Co-founder at Rentini

March 24th, 2014

Although it's an old article but you ca still dig into more detail here: http://venturehacks.com/articles/seed-valuation

Vadim Oss Co-founder at Rentini

March 24th, 2014

As far as I am aware and the way I've done this in the past the amount of equity you give up to investors goes out of the post-money valuation which includes the investment itself.

Here's the calculation:

$8M pre-money

$2M investment

$10M post-money

you give up 20% equity for $2M

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