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)]
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