Pre-Money Valuation Explanation in Video Form

Last week I tried something new – I made a screencast to explain pre-money valuation. Not the most difficult of subjects, which was good because it still took a lot of time to come up with something I didn’t mind having others look at.

I’ve already received some great feedback and I’d love more. I will do more of these screencasts, and they should get better each time.

We’re posting these videos in our StartupSpot YouTube Channel, and below is the video with a transcript:

Video Transcription

“Hello, this is Andrew with StartupSpot and I’m going to explain Pre-Money Valuation.”

“The Pre-Money Valuation for a company is the value before a round of investment. So what is the complete value of that company at that time before the money from the investor comes in.”

“In this case we have three million dollar pre-money valuation, then the investor puts in two million dollars. The split is that the founders or anybody that had ownership of the company before the investment is sixty percent and the investors then taking forty percent of the company.”

“If we change this to two million dollars with a two million dollar investment, its fifty fifty.”

“You can play around with these numbers and see what would happen with different investment levels and different pre-money valuations.”

“To look at it a different way, first I’m going to create a company profile for this. Just change the name to Pre-Money Valuation Example, leave the rest of it blank. And let’s go to the cap table.”

“We’re going to create two founder investors, and generically name them Founder 1 with 750,000 shares, and Founder 2 with 250,000 shares. That makes the math work out really nicely, since there’s a total of one million shares pre-money.”

“Next we’re going to add a Seed Round, a Seed Round is usually the first round of investment, either friends and family or angel investors or a combination of the two.”

“Gonna change this to convertible preferred, which we’ll cover in a later screencast.”

“And add an investor with 200,000 dollars, since the price per share is one dollar, because the pre-money valuation is one million dollars and there’s one million shares, that means that one million divided by one million is one dollar per share.”

“So, two hundred thousand dollars will get you two hundred thousand shares. The post-money valuation then is one point two million, that’s the one million pre-money plus the investment of two hundred thousand, so one million two hundred thousand dollars.”

One Response to “Pre-Money Valuation Explanation in Video Form”

  1. Al Spaulding November 18, 2012 at 7:25 am #

    This is a great post, I think you should turn it into a 2 or 3 part series.

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