Post- Money Valuation of Startup
After the first financing round from investors and venture capitalists, a startup company’s estimated market value is the post-money valuation.
Imagine that you’ve just closed a significant investment from a Venture capitalist, and now, the real question arises: How does this flow of large capital affect your company’s valuation? In a dynamic world of startups and venture capital, understanding valuation is important to entrepreneurs, investors, and stakeholders alike. Post-money valuation – a vital concept that helps determine how much a company is worth after a funding round.
Whether you’re a startup owner or a seasoned investor, understanding the concept of post-money valuation will empower you to make your financial decisions with confidence. Join us to learn more about post-money valuation, its significance, and calculations.
What is the post-money valuation of a startup?
Suppose your startup is valued at $10 million before receiving a $2 million investment, its post-money valuation rises to $12 million, reflecting its existing value and the fresh capital that fuels its growth. This valuation is calculated by adding the new investment amount to the pre-money valuation—the company’s worth before the funding round.
As the investors prepare to inject capital into the company, the post-money valuation becomes a crucial metric that determines not only the company’s worth after funding but also the equity stakes that will shape its future. The valuation of the company before these funds are injected is called a pre-money valuation. By adding cash into a business’s balance sheet, it will increase the equity value, this makes the post-money valuation higher than the pre-money valuation of the business due to the additional cash. This valuation is important for negotiating equity stakes, understanding dilution, and strategizing the next steps in business whether that’s scaling operations, expanding team or launching new product.
Why is post-money valuation important for a startup?
Understanding and managing post-money valuation effectively can empower founders to leverage their company’s growth and innovation in an increasingly competitive landscape.
- Equity Distribution: Post-money valuation determines how much ownership founders and investors hold after a funding round. Knowing this helps startups negotiate fair equity stakes and manage dilution.
- Investor Confidence: A strong post-money valuation can enhance investor confidence, showing that the startup has growth potential. This may attract additional investors who see the startup has potential.
- Market Positioning: Valuation reflects market perception. A higher post-money valuation can position a startup as a leader in its niche, attracting talent, partnerships, and customers.
- Strategic Planning: Knowing this aids in strategic decision-making. Founders can plan scaling, hiring, and product development with a clear understanding of their company’s financial landscape.
- Exit Opportunities: Valuation plays a crucial role in exit strategies, such as acquisitions or IPOs. A post-money valuation can enhance the attractiveness of the startup to potential investors.
- Performance Tracking: Tracking this over time allows startups to measure their growth and performance. It serves as a metric to evaluate how well the company is executing its business strategy.
Example of a Post-Money Valuation
Here are some examples of post-money valuation:
Example 1
GH Ltd is worth $500 million. An investor decides to invest $100 million in the startup in exchange for equity. The post-money valuation is now $600 million. The investor owns 16.667% (100/600) equity in the company. This example shows the general concept of post-money valuation. But this is not the same case in real-life scenarios. Calculating a company’s post-money valuation can be a complex process as they might have a capital structure consisting of incentives for the employees such as warrants, convertible loans, option-based management schemes, and restricted shares.
It is the price paid per share by the number of shares that exists after the investment. In other words, it considers all the shares that arise from any in-the-money option, warrants, and conversions of loans. So it is essential that the company’s post-money valuation is fully diluted and converted. All the convertible shares, employee stock options, and convertible bonds exercised should be included in the total number of shares. Once all these are accounted for and the dilution process is completed, the final share count represents the equity of the company.
Example 2
A company has 1.5 million existing shares.
- It has convertible loans of $1 million at 80% of the next round price.
- Warrants for 200,000 shares at $50 per share.
- An employee stock ownership plan of 300,000 shares at $10 per share.
- An investment offer of $10 million is received at $10 per share.
Details:
- Convertible Loans: $1,000,000 @ 80%
- Warrants: 200,000 shares @ $50/sh
- Employee Stock Option Plan: 300,000 shares @ $10/sh
- Investment Offer: $10,000,000 @ $10/sh
Step 1: Calculate the total number of diluted shares
- Initial shares: 1,500,000 shares
- New shares from the investment: 1,000,000 shares ($10M / $10/share)
- Loan conversion shares: 125,000 shares ($1M / ($10/share × 80%))
- In-the-money employee stock options: 300,000 shares
- Total diluted shares = 1,500,000 + 1,000,000 + 125,000 + 300,000 = 2,925,000 shares
Note: Warrants are not exercised because the warrant price of $50 is higher than the share price of $10.
Step 2: Calculate the post-money valuation
- Post-money valuation = Share price × Total diluted shares
i,e, = $10 × 2,925,000 = $29,250,000
Step 3: Calculate the pre-money valuation
- Pre-money valuation = Post-money valuation – New investment – Loan conversion – Value of exercised options
- Pre-money valuation = $29,250,000 – $10,000,000 – $1,000,000 – $3,000,000 = $15,250,000
Different Methods to Calculate Post-Money Valuation of a Startup
Companies that need funds and are opting for financing rounds will need to negotiate the company’s worth with its potential investors. To do so, they need to calculate the post-money valuation of the startup. Here are the most commonly used methods by investors and founders to determine the value of a startup.

Pre Money Valuation + Investments
The most common way to value a startup is to add the value of the investment to the startup’s pre-money valuation. The post-money valuation formula = pre-money valuation + investments. It might be a bit confusing to account for the pool shares when valuing the startup using this method. If the funds existed before the investor came in, then the pre-money valuation consists of it. The other way to include the pool in the valuation is by multiplying the pool shares by the sale price and then adding it to the sum. The valuation can be drastically affected by the strike price. It might look like inflation in the valuation of the company if the strike price is high.
The other way to include the pool in the valuation is by multiplying the pool shares by the sale price and then adding it to the sum. The valuation can be drastically affected by the strike price. It might look like inflation in the valuation of the company if the strike price is high.
The fastest way you can determine the post-money valuation is by taking the amount invested and dividing it by the expected ownership percentage that you would get. For example, Google invest $6 million for 60% ownership of your startup with a pre-money valuation of $20 million. The post-money valuation would be ($6 million divided by 60%) + $20 million = $30 million.
Discounted Cash Flows
Another way investors choose to evaluate the startup is through discounted cash flows. It is commonly used to determine the money an investor will get from an investment after adjusting the time value of money. The Time value method is based on the assumption that the value of a dollar at present is higher than the value of a dollar tomorrow. The reason behind this is because you can invest the dollar at present. The Discounted cash flow method is for investors looking to invest in a startup with an expectation of gaining high returns in the possible future.
For example, assuming a 10% interest rate, if you have $2 in a savings account in a year, it’s worth will be $2.10. Similarly, if you delay payment of $2 this year, the present value of it becomes $1.9. It is not in your savings account, so there will not be any interest gained.
Comparable Companies
Also known as trading multiples approach, a comparable company is a method that is used to evaluate your startup by utilizing the metrics of other similar businesses in the same industry and region. This method is operated under the assumption that the businesses similar to your own have relatively same multiples. Multiples are the metrics of businesses such as the EBITDA. The analyst will compile a list of all the available data about similar companies in the same industry and region. They further review them to determine the valuation multiples so that they can compare them to your company.
Based on the averages and benchmarks, the multiple can be multiplied by the company’s sales, EBITDA or other metrics which determines the value of the company.
Precedent Transactions
It is a method where the indicator and main data used is the price paid for a similar startup in the same market. The past prices are used to create and estimate what the stock price would look like if the company is acquired. Then the analyst uses this data to value the startup.
When combined with an understanding of post-money valuations this method equips stakeholders with a comprehensive view of a company’s worth in relation to historical market activity.
Interested in the post money valuation of your Startup?
To calculate the post-money valuation of a startup might sound easy, but if you are not well-versed with all the information, it could be a disaster. The best way to go around this is by hiring a professional. He will ensure that the valuation is done effectively and the amount is as close to accurate as possible. If not, then there is the possibility of you either overvaluing or under-valuing the startup, which could lead to huge losses.
When evaluating the company, the analyst often uses tools such as Eqvista not to make omissions or mistakes. Eqvista tools also provide you with a summary of all the data, allowing you to see all essential information and to make decisions quickly. Learn more about our professional 409a valuation services today!
Interested in issuing & managing shares?
If you want to start issuing and managing shares, Try out our Eqvista App, it is free and all online!