Pre-Money Valuation
Pre-Money Valuation signifies the hypothetical value of a company before a mutual investment agreement between the company and investors is established. It serves as a crucial benchmark in financial negotiations.
What it Means:
Pre-Money Valuation represents the company's value in its pristine state, excluding the influence of the imminent investment. It provides a baseline for assessing the impact of investments on ownership distribution.
How to Calculate:
To calculate Pre-Money Valuation, multiply the number of Fully Diluted shares before the investment by the purchase price per share negotiated in the investment transaction.
Why Measure:
Measuring Pre-Money Valuation is essential for both founders and investors. It sets the stage for determining the startup's initial value, facilitating transparent negotiations and equitable ownership distribution post-investment.
Examples:
Consider an Indian startup with 1 million Fully Diluted shares. Investors propose a purchase price of INR 100 per share. The Pre-Money Valuation, in this case, would be INR 100 million (1 million shares * INR 100 per share).
Understanding Pre-Money Valuation empowers Indian founders to navigate funding discussions effectively, ensuring fair valuations and sustainable growth for their startups.