Pre money / post money concept
Hi all, I got the below question in one of my interviews. I am not familiar with the concept of pre and post money valuation - can someone help?
Company A has 225 existing Class A shares and 225 existing Class B shares. The latest funding round was completed at price per share value of $2. We are investing $150 into Company A, of which $100 is primary capital and $50 is secondary to existing shareholders. a. What Company A’s fully diluted pre-money value? b. What Company A’s fully diluted post-money value?
Taking your question purely at face value (i.e. no more information on dilution, difference between the share classes, etc.), then I'd guide you to:
Pre-money is the valuation before any new money hits the company. Post-money is simply the pre-money valuation plus new cash.
Suppose I have a box ("business") with $100 inside it, and I own 100% of it. I invite you to inject your $50 into my box. Then, the box has $150 inside it, and you own 33.3% and I hold the remainder (where 33.3% = $50 / ($100 + $50)). In this example, the pre-money valuation was $100, and the post-money was $150 (original $100 plus new $50).
Now, if instead I invite you to buy part of my stake with your $50, there is still $100 in the box post-transaction (we didn't touch the box - I just gave you 50% shares in the box, and I stuck $50 into my pocket).
Does this help?
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My friend, you screwed up both the correct math ((225+225) x $2 = $900) and your own math (225 x $2 = $450).
Pre-money: (225MM A shares + 225MM B shares) = 450MM shares x $2 = $900MM valuation
Post-money: $900MM + $100MM new primary capital = $1.0Bn valuation
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