Question

Series A funding round post-money valuation: $6,234,680

Series B funding round pre-money valuation: $5,000,000

Valuation step-up: -19.8%

How does the Series B pre-money valuation of this business compare with its Series A post-money valuation? What is this called?

Answer 1

Post money valuation after Series A funding gives the value of $6,234,680 to the start-up. However, there is a decline in the pre money valuation for Series B funding $5,000,000. Normally, this value increases if the start up is performing well and reflects the current valuation numbers, before raising funds for the next round.

This difference between post money valuation in the last round of financing and pre money valuation in the next round of financing is called as step up multiple. And , as can be seen here, it is on a declining trend, showing that the operations of the start up did not do as well as the investors were expecting and hence, it is currently being valued at a much lesser valuation that before.

Step up multiple can be calculated as follows :

=New valuation (pre money of next round)- old valuation (post money of previous round) / post money valuation of previous round

=($5,000,000-$6,234,680)/$6,234,680

=-$1,234,680/$6,234,680

=-19.8%