Investors Archives - Consilue https://consilue.com/en/tag/investors-en/ Consulting professionals Fri, 19 Nov 2021 18:34:56 +0000 en-US hourly 1 https://wordpress.org/?v=6.9.4 https://consilue.com/wp-content/uploads/2019/10/favicon.ico Investors Archives - Consilue https://consilue.com/en/tag/investors-en/ 32 32 Pre-money & Post-money valuation https://consilue.com/en/pre-money-post-money-valuation-2/ Mon, 19 Mar 2018 12:02:06 +0000 http://consilue.com/?p=772 Equity financing considers two crucial terms, namely pre-money valuation and post-money...

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]]> Equity financing considers two crucial terms, namely pre-money valuation and post-money valuation. They refer to the valuation of a company prior to and post to equity financing.

Normally company receives equity financing in several rounds in order to motivate management and decrease the underlying investment risks.

If a company is worth 60 units (pre-money valuation) and an investor makes the investment of 20 units, the new, post-money valuation of the company amounts to 80 units. The ownership share gained in exchange for a new investment thus amounts to 25%.

In case of start-ups, the value estimation is due to high risk somehow vaguer. Therefore angel investors and venture capitals often offer certain investment amount for a particular ownership share based on their experiences and insights. Let’s say 25% for the investment of 20 units. However, by doing so, they have implicitly set the post-money valuation of the company to 80 units and pre-money valuation to 60 units.

This basic example illustrates the general concept. However, in reality the calculation of post-money valuation is more complicated due to convertible loans, in-the-money warrants and in-the-money employee stock option plans (ESOP).

In fact, the pre-money and post-money valuation should derive from the calculation of price per share multiplied by the total number of shares. Therefore, one has to consider the number of shares on a fully diluted and fully converted basis.

If the value per share increases compared to the previous round, then the investment is called an upround. It eventually means that the pre-money valuation is higher than the post-money valuation of the previous round. For the vice-versa case industry practitioners use a term downround.

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]]> Business valuation – for whom and why? https://consilue.com/en/business-valuation-for-whom-and-why/ Mon, 19 Mar 2018 11:26:11 +0000 http://consilue.com/?p=762 See who is mainly dealing with business valuations and read where are they used.

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Complexity of the business valuation (also referred to as corporate valuation) resulted in a growing industry of professionals, consultants, and professors who are developing various techniques to measure the value and its creation.

Business valuations practitioners are divided into two segments:

  • Business valuation external group: Investors, consultants, analysts
  • Business valuation internal group: Managers

It is not surprising that due to the amount of data available to the internal group, the most used methods and techniques to derive the value estimate classify into the income approach. Besides income approach the external group also often uses methods and techniques classified into the market approach.

The purpose for business valuation partially depends on the group.

Common business valuation purposes for the internal group are:

  • Value based management
  • Business planning
  • Goodwill impairment
  • Reorganizations and bankruptcies
  • Recapitalizations
  • Damage litigations
  • Initial public offerings
  • Compensation schemes
  • Employee stock ownership plan

In contrast to these, the external group’s business valuation purpose relates to:

  • Options and stocks ownership
  • Exercising stock options or warrants
  • Tax (estate, gift, and income)
  • Giving stocks as a gift
  • Mergers and acquisitions
  • Shareholder oppression cases

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]]> Pre-money & Post-money valuation https://consilue.com/en/pre-money-post-money-valuation/ Wed, 20 Sep 2017 17:33:04 +0000 http://consilue.com/?p=126 The article is explaining the difference between pre-money valuation and post-money valuation, which in fact refer to the valuation of a company prior to and post to equity financing.

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]]> Equity financing considers two crucial terms, namely pre-money valuation and post-money valuation. They refer to the valuation of a company prior to and post to equity financing.

Normally company receives equity financing in several rounds in order to motivate management and decrease the underlying investment risks.

If a company is worth 60 units (pre-money valuation) and an investor makes the investment of 20 units, the new, post-money valuation of the company amounts to 80 units. The ownership share gained in exchange for a new investment thus amounts to 25%.

In case of start-ups, the value estimation is due to high risk somehow vaguer. Therefore angel investors and venture capitals often offer certain investment amount for a particular ownership share based on their experiences and insights. Let’s say 25% for the investment of 20 units. However, by doing so, they have implicitly set the post-money valuation of the company to 80 units and pre-money valuation to 60 units.

This basic example illustrates the general concept. However, in reality the calculation of post-money valuation is more complicated due to convertible loans, in-the-money warrants and in-the-money employee stock option plans (ESOP).

In fact, the pre-money and post-money valuation should derive from the calculation of price per share multiplied by the total number of shares. Therefore, one has to consider the number of shares on a fully diluted and fully converted basis.

If the value per share increases compared to the previous round, then the investment is called an upround. It eventually means that the pre-money valuation is higher than the post-money valuation of the previous round. For the vice-versa case industry practitioners use a term downround.

The post Pre-money & Post-money valuation appeared first on Consilue.

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