Hey guys,
Let's say a company is raising $5M in exchange for equity. Would it make sense to value the company pre-money or post-money? For example, if I wanted to run a DCF, would I project the company's FCF, etc. based on its current state without money? Or would it make more sense to run the DCF assuming they had $5M more in cash today? However, that then runs into the problem of not knowing how much equity the $5M would get, because we don't yet have the valuation. The reason I'm asking is, let's say the pre-money valuation is $20M. Then we could simply add $5M and get a $25M post-money valuation. But wouldn't that be incorrect since that extra $5M could create additional value (increasing returns to scale)? So it would make more sense to value the company post-money - perhaps we come up with a $30M post-money valuation, and then we would go back and say the $5M would be for 16.67%.
Thanks, appreciate any help!
Pre-money Post-money valuation (Originally Posted: 01/27/2018)
Hi,
If a firm has a pre-money valution of USD 100m and It accepts an offer from another investor for USD 60m, that would implicate a pre-money stake of 60% for the new investor. Assuming all the cash is injected into the company, this would translate into a post-money stake of 37,5%. If this is paid to shareholder then the new investor would have a post-money stake of 60% (the same as pre-money stake) as he/she gets 60% of the shares in exhange for the paid amount to shareholder. I am wondering what the new investor’s post-money stake would be if he gives USD 30m to the shareholder and injects the remaining USD 30m into the company? Does this translate into a post-money stake of 53% in the company for the new investor? [(30/100) + (30/130)]
In the case you laid out, the pre-money valuation would be $100, the post-money would be $130 (pre-money valuation + primary investment), and the calculation of post-money ownership % is (primary + secondary) / (post-money valuation); so, $60/$130 or ~46%.
Post-Money Stake vs. Pre-Money Stake (Originally Posted: 01/27/2018)
Hi,
If a firm has a pre-money valution of USD 100m and It accepts an offer from another investor for USD 60m, that would implicate a pre-money stake of 60% for the new investor. Assuming all the cash is injected into the company, this would translate into a post-money stake of 37,5%. If this is paid to shareholder then the new investor would have a post-money stake of 60% (the same as pre-money stake) as he/she gets 60% of the shares in exhange for the paid amount to shareholder. I am wondering what the new investor's post-money stake would be if he gives USD 30m to the shareholder and injects the remaining USD 30m into the company? Does this translate into a post-money stake of 53% in the company for the new investor? [(30/100) + (30/130)]
Hic ratione tempora culpa et ex est. In ut repellat quam ut delectus. Provident soluta et facere autem nostrum hic.
Nobis eaque nisi et modi explicabo nihil odit minus. Voluptatem deleniti quis officia et id doloribus a numquam. Error perferendis iusto ducimus ipsam et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...