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Pre-Money vs. Post-Money business valuation is one of the weirdest terms you’ll have to deal with as you navigate your fundraising. It almost looks deliberately designed to confuse you and screw you.
But it’s not.
The reality is that both of these terms are important and used for different critical calculations your business needs to run.
Business valuation: Understanding company shares
The first concept your business needs to grasp is how shares get issued. We are accustomed to thinking of company ownership as percentages. I’m giving 10% to this investor. The founders are keeping 30% each for themselves.
But what if a new investor comes in? Whose end does their 10% come from?
Understanding company ownership in percentages is simple, but the reality is that’s just not how things work in real life.
Splitting and distributing shares
While LLCs operate on percentage ownership, C-Corporations (the most traditional types of business structure, especially in the startup world) work with shares of stock.
When a company is founded, it creates a bucket of shares. A share is a fraction of the company. So, yes, you could have…
