Business Valuation: An Introduction to Pre/Post Money Valuation

Pre-money and post-money are frequently used terms to describe the valuation of a company when raising capital. In this post, we provide an introduction to the concepts as well as explore the impact multiple rounds of funding have on the entrepreneur's ownership stake.

The pre-money valuation of a company is simply the value of the company before an equity investment is made. The post-money valuation is the pre-money valuation plus the equity investment.  

For example, suppose you and a partner start a company. You initially issue 1,000,000 shares of stock and divide them equally between you and your partner. After some initial success, you decide you need additional capital. An investor states they are willing to invest $5 million at a post-money valuation of $15 million, giving an implied pre-money valuation of $10 million. So before you receive the investment, the original shares were worth:

To complete the transaction, you have to issue new shares to the investor. For the $5 million investment, the investor receives:

So now there are 1,500,000 shares outstanding, with you and your partner owning the original 1,000,000 shares, representing 67% of the company. Suppose the company continues to grow and show promise. It is not long before you need additional capital. A new investor now is willing to invest $10 million at a post-money valuation of $30 million, giving an implied pre-money valuation of $20 million. Notice that the investor is willing to give a premium to the previous round -- nice work! Using the same calculations, each share is worth $13.33 before the investment ($20,000,000 / 1,500,000) and the company will issue 750,000 new shares  ($10,000,0000 / $13.33) to this latest investor. Following this transaction, there are 2,250,000 shares outstanding with the 1,000,000 owned by you and your partner representing 44% of the company.

As you can see, each round of capital that you raise, reduces you and your partners ownership stake in the company (i.e. "dilutes"). However, each time you raise capital, the value of each of your shares is getting higher and higher (from a couple bucks to $10 per share to $13.33 per share). The outside investors from early rounds are also subjected to dilution at each subsequent round of funding. Investors can mitigate the amount of dilution they incur by participating or "playing" in each funding round. In other words, the investors who have invested previously may exercise the option to invest in subsequent rounds to maintain their equity stake. 

When raising capital, pre-money valuation and the dilution of your ownership is an important issue as a business owner. Remember though, owning 10% of a huge pie can often be more lucrative than owning 50% of a small pie, and you often need outside capital to build a large pie! While this post is focused only on valuation, there are other key terms to review when raising growth capital, which will be the subject of future posts. In the meantime, great resources from around the web on these issues are FeldThoughts and Venture Hacks.   

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Ben Bernanke The Talking Fed Head

Whether it's a Saudi prince, an Afghan puppet or a Chinese president, reporters, worn out by the way our homegrown leaders refuse to directly answer specific questions, seem to particularly relish the opportunity to make the absolute rulers of millions squirm before the cameras.

Source: http://blogs.forbes.com/greatspeculations/2011/04/27/ben-bernanke-the-talking-fed-head/

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Bad Credit Consolidation Loans: How To Find The Best Online Lenders

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Check Out The World's First LIVE Magazine

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On May 11, Pop-Up Magazine -- "the world's first live magazine" -- is leaving the friendly confines of San Francisco and heading to New York's Skirball Center.

The event features the work of Oscar-winning filmmaker Alex Gibney, The New Yorker's William Finnegan, and New York Times Magazine writer Jon Mooallem as well as ESPN's Jay Bilas, Katie Baker, and Paul Lukas, and plenty of other huge talents.

The show is a collaboration with ESPN The Magazine. The two publications worked together to create the event after ESPN editor-in-chief Gary Belsky learned of the popular SF events and reached out to the group.

Both outlets were careful to make sure the New York version retained its sensibility.

"I didn't want to feel like Pop-Up was invading ESPN, like we were taking a show and plunking it down in ESPN's lap, and I didn't want it to feel like we were hired by ESPN to create a show," Pop-Up creative director Derek Fagerstrom told The Wire by phone on Wednesday afternoon. "It's going to be a unique show. It's going to be Pop-Up and ESPN in the truest sense. We're going to bring our aesthetic and ESPN is bringing theirs as well."

Fagerstrom, in addition to the rest of the Pop-UP crew -- Douglas McGray (editor-in-chief), Lauren Smith (creative director), Maili Holiman (design director), Evan Ratliff (story editor), Dave Cerf (technical director) -- put out the call for submissions to a wide variety of contributors. They received an overwhelming response, something Belsky credits to the increased cultural importance of the sporting world.

"A lot of great writers are interested in sports now so you get great writing about sports," he said.

The goal of Pop-Up is simple.

"It's meant to provoke. It's meant to make people think," Belsky said. "It's meant to have aspects of it fall flat on its face. That's the nature of live, experimental performance and content on-demand in the literal sense."

At its heart, the May Pop-Up is really just the latest in a line of bold exercises. The creators know the best plan is to recruit great participants, keep open minds, smile, and let the proceedings go where they may.

"We want to have fun, be bold, and see what happens, Fagerstrom said.

The EIC agreed.

"There's almost no way it doesn't work as long as the show does go on," Belsky said.

(Tickets to the show go on sale Thursday, April 28th at noon.)

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Top Five How to Save Money Tips

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Top five how to save money tips brings you crucial advice that you must follow in order to avoid draining all your hard earned money away. To lead a healthy financial life you need to save money for a rainy day. You need to know that the more savings you accumulate over long period of time the richer you become. To grow your wealthy you need to have savings that you can deploy or investment so to generate wealth. Without savings you don't have the capital to start a business, go back to school or even to build or buy a home.

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Speculation On Sprint, Caterpillar Call Options Active Before Earnings

Signs of bullish sentiment on the machinery maker appeared in the options market this morning with the price of Caterpillar?s shares rising as much as 3.1% to an intraday high of $112.20.

Source: http://blogs.forbes.com/greatspeculations/2011/04/26/speculation-on-sprint-caterpillar-call-options-active-before-earnings/

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Cheat Sheet: Look What Oil Will Do To Markets As It Continues To Surge

In a recent research report Standard Chartered provided a nice cheat sheet for the increasing energy woes.  They provide a one stop shop for the various impacts on all asset class at different oil prices.  Although their stress levels appear somewhat higher than many other research firms (Merrill says $120 while SC says $150)the cheat sheet is quite helpful in gauging how oil prices will impact different assets as prices move ever higher.  The following is via Standard Chartered:

  • The rise in oil prices so far will slow the world economy only marginally, but will boost inflation.
  • At USD 150/bbl, the world upswing would slow sharply; at USD 200/bbl, we would expect a new recession.
  • Many emerging-market central banks and the ECB will still hike rates at moderately higher oil prices, on fears of inflation.
  • The Fed is focused on core inflation; an oil-price spike to USD 150/bbl would bring QE3 as the Fed feared recession.
  • Credit – Higher oil prices are negative for Asia, positive for the Middle East; at USD 200/bbl, credit spreads would blow out across the board on recession concerns.
  • Rates – An oil price of up to USD 150/bbl is bearish for Asian rates, particularly MYR and INR. At USD 200/bbl, growth fears would dominate and rates curves would flatten.
  • FX – USD would weaken initially, except at USD 200/bbl; in Asia, we favour long IDR versus shorts in THB, PHP, INR.
  • Commodities – Bullish for food, aluminium and gold.

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This post previously appeared at PragCap >

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Reality Megaproducer Mark Burnett On NBC's "The Voice," Donald Trump And Sarah Palin

burnett/trumpMark Burnett is the man behind "Survivor" -- so you might say he's the man behind reality television.

But there's one thing Burnett (who launched "The Apprentice," "Sarah Palin's Alaska" and "Are You Smarter Than A Fifth Grader?") hasn't done: a sweeping, sparkling singing show.

Until now. Burnett's take on Swedish property "The Voice" premieres tonight on NBC and features a coach-centric format.

"Mentors" Christina Aguilera, Blake Shelton, Cee-Lo Green and Adam Levine attempt to coax undiscovered talent to their respective teams. Carson Daly hosts.

Burnett spoke to The Wire by phone on the eve of the show's premiere.

THE WIRE: "The Voice" is on the scale of "American Idol" and Simon Cowell's "X Factor." Even with everything you've done in the reality space, did you always wish you'd been the one to invent that format?

MARK BURNETT: "X Factor" I've never, ever seen.

TW: You're kidding.

MB: Even though I grew up in London and my family all watch it, I've never watched it. "Idol" I've watched many times. And yes, I've always thought, "God, I would love to have a successful music show."

Paul [Telegdy, Universal's EVP of reality development] and I were noodling around for six months looking for one when he said, "check out 'Voice of Holland.'" I went on YouTube and looked and said, "Paul, I wish we thought of this." He said, "Yeah, me too."

TW: On "The Voice," it's famous singers encouraging these unknowns, mentoring them, as you guys say -- it follows on the happy tone of this year's revamped "Idol."

MB: Yes. Christina [Aguilera], once she understood that she wasn't being asked to criticize people and pull them down -- that's when she said, "This could be fun."

TW: But do you worry about this whole kumbaya trend maxing out?

MB: Well, "Idol" is very positive this year, and the ratings are up. I'm enjoying it, my kids love it. So we're not very worried.

TW: How do you create tension and drama, though, when everything's lovey-dovey?

MB: Oh, there's lots of drama. It's like the NBA draft -- these coaches are assembling their rosters. They build teams of eight, and then in the battle rounds those teammates compete against each other, singing the same epic songs, [to stay on the show]. 

TW: So that element will help "The Voice" straddle the line between "Idol" positivity and what will probably be the more cutthroat tone of "The X Factor" when it comes to the U.S. this fall. How do you think having that show stateside will change the game?

MB: What show?

TW: "X Factor." The one we were just talking about, with Simon Cowell? It's coming to Fox.

MB: Oh, right. That's far away. That hasn't even crossed my mind.

TW: Something that's very intriguing to us in media is your new agreement with Hearst -- you recently set up a partnership with them. What can we expect from that?

MB: I was recently there in New York all day, and I think I'm going to fit in so well. All these writers and editors producing incredible content... you know, I'm not looking at this as just television. It's about content.

TW: Meaning...

MB: There are screens everywhere. Who knows how we're getting content in the future? I have three teenagers, and the other day, they're huddled together, sharing earbuds, watching something on an iPad -- while they're in the room with a flatscreen TV. I said, "You've got the TV right there. Just push the button." They're like, "Dad, we're busy."

The point is -- there are screens at the gas station, there are screens at the shopping mall. And they all need content.

TW: So you're more interested in using what's actually in Hearst publications? Or can we also expect programming or projects that feature the people in that building?

MB: All of the above. It's a crazy world, these writers and editors, and these are great brands. It doesn't take much to figure it out. I'm looking a lot at the fashion and beauty surrounding some of the females. And I'm a great fan of Esquire, so I'm looking at that, definitely. 

TW: Meanwhile, it's been a great season for "Celebrity Apprentice." Ratings are up every episode.

MB: How funny is that team this season? You know how I know [it's good]? My wife, who could watch all the rough cuts she wants -- she waits to watch it on TV. Did you see the moment when Trump asks Marlee Matlin if she likes someone's records? And she goes, "I'm deaf." He's unbelievable.

TW: And this speculation about him running for president -- all eyes, right now, are on him and a former subject of yours, Sarah Palin. Who would make the better president?

MB: Oh, no. I can't -- I'm just trying to focus on making the shows right now.

TW: Come on.

MB: I stay so far away from that stuff, honestly. It doesn't enter my mind.

TW: At least tell us, then, which of them would fare better on "Survivor."

MB: Sarah. Sarah would do better than Donald. She likes being out there in the woods.

 


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Things To Learn About Oklahoma Payday Loans ? Absolutely Essential Read For The Loans Takers

Today, a great deal of financial assistance services have been in demand because of the global crisis that’s been going on for years. A lot of us are in need and there are a lot of places to look for for solutions. It is just a matter of understanding the right fit for every financial [...]

Source: http://www.legaldebthelponline.com/2011/04/26/things-to-learn-about-oklahoma-payday-loans-absolutely-essential-read-for-the-loans-takers/

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Is It Legal To Copy DVDs?

Individuals who would like to make duplicates of their store bought DVDs usually wonder if it’s legal to copy DVDs. Obviously the answer is no but a lot of people may not know that there exists a loophole which provides them protection by law. They won’t be prosecuted for piracy if they use the best [...]

Source: http://www.legaldebthelponline.com/2011/04/26/is-it-legal-to-copy-dvds/

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