How To Calculate Your Pre-Money Valuation
Today I wanted to write about this issue, because I’m trying to figure this one out myself. Of course anytime I learn something new, I’m blogging those experiences with my fellow startups.
Yesterday, I met with an investor who asked our pre-money valuation. We had a figure, but just how accurate this figure is…who is to say. A few questions were going through my head surrounding pre-money valuation, like “are they ever really right”? Is there really an accurate way to calculate your pre-money valuation?
Simply put, a pre-money valuation will never be right on the money. It’s usually negotiated between the investor and the entrepreneur.
But..there is ways to estimate your pre-money valuation..
So today’s question is “How do you calculate your startup’s pre-money valuation”?
There’s two simple ways to do this:
1. Use a free pre-money valuation calculator
2. Do the formula by hand
Here is the formula:
Formula to Calculate Pre-money Valuation and Post-money Valuation
(1) Pre-money Valuation = Post-money valuation – Venture Capital Investment
(2) Post-money Valuation = Venture Capital Investment/Venture Capital Ownership Percentage
You can calculate share price with this formula:
(3) Share Price = Pre-money Valuation/Number of Pre-money shares.
You can calculate how many shares to issue the venture capital firm by this formula:
(4) New Shares Issued = Venture Capital Investment/Share Price