Thursday 30 March 2023

Pre Money and Post Money

                                        "Pre-money" and "Post-money"

 

"Pre-money" and "post-money" are terms used to describe a company's valuation before and after an investment, respectively.

 

Pre-money valuation refers to the value of a company before any investment has been made. It includes all of the company's assets, liabilities, and intellectual property. For example, if a company is valued at INR10 million before an investment, that is its pre-money valuation.

 

Post-money valuation, on the other hand, refers to the value of the company after an investment has been made. It includes the pre-money valuation plus the amount of the investment. For example, if a company raises INR 2 million in investment and has a pre-money valuation of INR10 million, its post-money valuation would be INR 12 million.

 

Here's an example to help illustrate this concept:

 

Let's say a startup called XYZ is seeking INR 1 million in funding to help grow their business. An investor offers to invest INR 1 million in exchange for a 20% equity stake in the company.

 

Before the investment, XYZ is valued at INR 4 million. This is their pre-money valuation.

 

After the investment, the value of the company will be INR 5 million (INR 4 million pre-money + INR 1 million investment). This is their post-money valuation.

 

In this example, the investor's 20% equity stake is worth INR 1 million (20% of the post-money valuation of INR 5 million).

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