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Pre-Money vs. Post-Money: What’s the Difference?

What’s the difference between pre-money and post-money? The timing of the valuation is the answer to this question. Both pre-money and post-money are valuation measures of companies and are critical in determining how much a company’s worth, especially with start-ups and early-stage companies.


Pre-money valuation is the value of a company excluding external funding or the latest round of funding / investment. Pre-money is best described as how much a business might be worth before it begins to receive any funding. This valuation gives investors an idea of the current value of the business, but it also calculates the value of each issued share.


Alternatively, post-money refers to how much the company is worth after it receives the cash investments into it. Post-money valuation includes outside financing or the latest capital injection. Therefore, it is important to differentiate between the two as they are critical concepts in the valuation of any company.

Here’s an example which helps explain the difference:

Suppose an investor is looking to invest in a tech startup. The founder and the investor both agree that the company is worth $2 million, and the investor will put in $500,000.

The ownership % of the founder and the investor will depend on whether this is a $2 million pre-money or post-money valuation. If the $2 million valuation is pre-money, the company is valued at $2 million before the investment.  After the investment, the company is valued at $2.5 million. Therefore, if the $2 million valuation takes into consideration the $500,000 investment, it is referred to as post-money.


Pre-Money Valuation Post-Money Valuation
 Value % Ownership  Value % Ownership
Founder $2,000,000 80% Founder $1,500,000 75%
Investor $500,000 20% Investor $500,000 25%
Total $2,500,000 100% Total $2,000,000 100%


As you can see, the valuation method used can have a big impact on the ownership percentages. This is due to the amount of value being placed on the company before investing. So, if a company is valued at $2 million, it is worth more if the valuation is pre-money because the pre-money valuation does not include the $500,000 invested. While this ends up affecting the founder’s ownership by a small percentage of 5 percent, it can potentially represent millions of dollars if the company goes to IPS / exits.

In many cases, it’s very hard to determine what the company is really worth. Valuation becomes a subject of negotiation between the founder and the investor, especially with start-ups and early stage companies.

Calculating Post-Money Valuation

Calculating the post-money valuation is easy. Simply use this formula:

  • Post-money valuation = Investment dollar amount ÷ percent investor receives

So if an investment is worth $2 million nets an investor 20%, the post-money valuation would be $10 million:

  • $2 million ÷ 20% = $10 million

Bear one thing in mind. This doesn’t mean the company is valued at $10 million before getting a $2 million investment. This is due to the balance sheet showing only shows an increase of $2 million worth of cash, increasing its value by that same amount.

Calculating Pre-Money Valuation

The pre-money valuation of a company comes before it receives any funding. This figure does give investors an indication of what the company would be valued at today. Calculating the pre-money valuation is also easy. But it does require one extra step—and that’s only after you figure out the post-money valuation. Simply:

  • Pre-money valuation = Post-money valuation – investment amount

Using the example from above to demonstrate the pre-money valuation. In this case, the pre-money valuation is $8 million. That’s because we subtract the investment amount from the post-money valuation. Using the formula above we calculate it as:

  • $10 million – $2 million = $8 million

With this knowledge, the pre-money valuation of a company makes it easier to determine its value per individual share. This can be calculated as follows:

  • Per-share value  = Pre-money valuation ÷ total number of outstanding shares


Article written by Peter O’Sullivan, VIC Regional Director at The CFO Centre

7 Levers in Every Business

Have you ever wondered why your cash-flow fluctuates even when sales are strong? Or how your business is valued in the eyes of an external party? Then you need to know the seven (7) levers in your business.

With just a little additional focus on one or more of these 7 levers, you can directly improve the cash-flow, profitability and/or value of your business. There’s no smoke and mirrors, nor anything particularly difficult to undertake. However, many business owners do not take the time to appreciate how the financial performance of their business really works.  So, let’s break it down.

Often business owners will primarily focus on sales volume, in other words trying to sell more. However, whilst sales volume is important, it’s only one of the 7 levers available to you.

What are the 7 levers in a business that control your cash, profit and business valuation?

The first four levers are focused on your Profit and Loss and therefore directly impact the profitability (and cash-flow) of your business. As most, businesses are valued at a multiple of cash earnings. These levers also have a huge impact on the value of your business (along with other aspects such as Brand, customer base / income streams, and internal expertise / “keyman” dependence).


Selling more – although increasing sales can grow your business, don’t forget to focus on the other levers below! How much of every extra $1 in revenue turns into profit and into cash in your bank account, and when?

Tip – formulate a sales & marketing plan, with a budget, which is aligned back to your  overall Strategy. Review and tweak the plan regularly.  This will help keep you focused on the right way to grow your top line.  Any growth needs to be sustainable!

      2. Pricing

can you increase your prices? Even a 1% increase can have a big impact. There can be a fear of losing customers by putting up your prices, which can often be unfounded.

Tip – review your margins by product / service stream / customer to ascertain which sales are making you money and which are not.  You need to know your break-even points!  Your part- time CFO can help – they love this stuff!

Tip – the results of your pricing analysis need to dovetail into the sales & marketing plan. It’s possible to make more profit from less turn-over!

      3. Cost of Goods Sold – reduction in % terms

This lever is most relevant to those businesses with direct costs such as manufacturers, construction, etc and places the focus on your gross margin.

Tip – revisit your direct purchasing arrangements and negotiate better terms and pricing. For example, bulk purchase discounts, early payment discounts, reduced freight.  Maintaining strong supply chain relationships is important but that doesn’t mean you can’t ask the question (or find potential alternatives).

Tip – review your direct labour-force using metrics such as labour utilisation, overtime levels, re-work, customer complaints, and down-time.  You may be able to re-deploy staff or reduce casual labour / overtime once you have this data.  Again, your part-time CFO can make this happen for you.

     4. Reducing Overheads

This may sound like an obvious one, but we always find at least some unnecessary “fat” in our client’s overhead expenditure.

Tip – someone needs to review the overheads line by line. Indirect / office wages, communications, insurance, utilities, freight, and advertising are the common ones where savings can be achieved. Even small reductions in certain areas can all add up over time!

These last three levers are focused on your Balance Sheet and are collectively called Working Capital. They have a significant impact on your cash-flow and therefore also on your funding requirements. Many businesses can avoid additional debt borrowings, or pay their existing debt faster by shortening their cash-conversion cycle.

     5. Reducing debtor days

This means improving the ageing profile of your Accounts Receivable function (i.e. getting your customers to pay you faster).

Tip – review your credit control policy and your payment terms as customers with poor payment histories should be carefully managed.  Review your collections process in terms of who chases the debt and when.  The introduction of direct debit may be an excellent solution for some businesses.

     6. Reducing stock days

This means a faster conversion of your inventory (if you carry it) into sold product, thereby reducing the amount of stock you hold.

Tip – introduce a stock-take process if you don’t have one. This can ensure that your financial records mirror what you actually have on the shop-floor. Then review the results of the stock-take for slow-moving or obsolete stock items which may need to be discounted in order to convert them into cash.  Your purchasing policies may also need review if you are over-stocked with certain inventory lines.

     7. Increasing creditor days

This means taking longer to pay suppliers (without hurting the relationship or cutting off supply).

Tip – contact your suppliers to re-negotiate your settlement terms. It’s just a matter of asking the question – they may say “no” but then again, they may really value your business.

Now you know the what the 7 levers are, it’s time to do something tangible with them in order to make a real impact on your business. If you don’t have the internal expertise or time to make it happen, we would be happy to talk to you about how a part-time CFO can bring this to life. After all, as CFOs it’s what we do!


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