Question

What is the difference between pre-money and post-money valuations? Back your response with at least two examples.

Answer 1

Pre-money valuation refers to the valuation that is done prior to the latest financing round. Post-money means the valuation after the financing round is completed.

Example 1:

So, a round of financing from a venture capital firm is $100000. Lets say the value of the firm is 1 $ million.

If this valuation is pre-money, it means the $100000 is over and above that and now after the round of financing, the total valuation is 1.1 mn $ (100000+1000000)

If this valuation is post-money, it means the $100000 is included in the valuation and after the round of financing, the total valuation is still 1 mn $ (100000+900000)

Example 1:

So, a round of financing from a private equity firm is $1000000. Lets say the value of the firm is 10 $ million.

If this valuation is pre-money, it means the $100000 is over and above that and now after the round of financing, the total valuation is 11 mn $ (1000000+10000000)

If this valuation is post-money, it means the $1000000 is included in the valuation and after the round of financing, the total valuation is still 10 mn $ (1000000+9000000)