Post-money valuation

Post-investment value is the estimated total value of a company after external financing or capital raising has taken place.

A planned capital raise before that business angels or the venture capital investors the pre-money valuation based on which they can calculate how much share they should own, so that after the capital injection they plan, their investment in the expected return provide for them. The sum of the pre-money valuation and the capital investment will be the value of the post-money valuation.

For example, if the pre-investment valuation is $100 million and the investor puts $25 million into the company, this creates a post-investment valuation of $125 million. At that time, in normal cases, the investor gained 20 percent influence in the company, since the capital raise is exactly one fifth of the post-investment valuation.

In reality, however, it rarely happens that the entrepreneur, startup its founder and the venture capital investor are clearly the same as the assets in the company and intellectual property of its exact value. The bigger a company is, the more it can define evaluations during financing procedures, but mostly the word of the investor is more pronounced. 

In the case of multi-round investments, the valuation is complicated by the problem of dilution, against which a in term sheet almost always on anti-dilution protection the parties conclude provisions on. The cautious founders and early investors are always careful to find a balance between the new capital between its inclusion and the still acceptable level of dilution for them.

Newer investment rounds can also be added dividend priority, liquidation, return or with other pre-emptive rights that may also affect the post-investment valuation.

When raising new capital, if the pre-investment valuation is greater than the latest post-investment valuation, it is referred to as an "up round", and if the situation is reversed, it is called a "down round". The founders and existing investors always try to prepare for both eventualities. A "down round" usually leads to the dilution of existing ownership shares and does not show a very good picture of the company, while an "up round" indicates an upward trajectory. In addition to these, a third case is the "flat round", when the previous and the new evaluation are almost identical.