Pre-Money vs Post Money Valuation
Basic question. Let's assume the following
Net Debt as of today is $0 Year 1 Sales (LTM) - $10 Year 2 Sales (1 year forward)- $20 Year 3 Sales (2 year forward)- $30
I am looking to invest $5 today (primary infusion) at an EV/Sales (1 year forward) multiple of 4. This means my EV is $80 and given Net Debt today is $0, my equity value is $80.
My question is - is $80 the pre-money valuation meaning $85 is post money or is $80 my post money valuation meaning $75 is pre-money? Thank you.
Post Money= 85
Thank you. Some people have the view that $80 is post money because the $5 infusion will go towards achieving the 1 year forward sales, so it should be considered as the post money valuation. Is this logic flawed?
Yes it is flawed: by definition, pre-money is your valuation prior to the next funding round so you can't include the cash infusion in it.
80 is the pre-money, 85 is the post
Out of curiosity, how does the answer change if net debt was -$10 (i.e. $10 cash, no debt)?
Pre-money equity value would be 90 and post would be 95. No change in the EV
general assumption (w/ not debt) is that if you're adding $5m to the BS then you are going to use it all by the time you exit the business. So your actual cost basis will start off the $80m TEV + $5m = $85m post money equity value in cash you put on the BS to fund growth.
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