Post-Money Valuation
Post-money valuation is a company’s estimated worth after outside financing and/or capital injections are
added to its balance sheet. Post-money valuation refers to the approximate market value given to a
start-up after a round of financing from venture capitalists or angel investors have been completed.
Valuations that are calculated before these funds are added are called pre-money valuations. The
post-money valuation is equal to the pre-money valuation plus the amount of any new equity received
from outside investors.
Investors such as venture capitalists and angel investors use pre-money valuations to determine the
amount of equity they need to secure in exchange for any capital injection. For example, assume a
company has a $100 million pre-money valuation. A venture capitalist puts $25 million into the company,
creating a post-money valuation of $125 million (the $100 million pre-money valuation plus the investor’s
$25 million). In a very basic scenario, the investor would then have a 20% interest in the company, since
$25 million is equal to one-fifth of the post-money valuation of $125 million.
The scenario above assumes that the venture capitalist and the entrepreneur are in total agreement
about the pre and post-money valuations. In reality, there is a lot of negotiation, particularly when
companies are small with relatively little in the way of assets or intellectual property. As private
companies grow, they are better able to dictate the terms of their financing round valuations, but not all
companies reach this point.