Valuation
Startup Valuation for Founders and Employees
Valuation sets the price at which shares are issued and determines dilution for every round. Understanding how pre-money, post-money and price per share fit together helps you read a term sheet correctly.
Valuation methods behind option pricing
Startup Valuation
Startup valuation is negotiated between founders and investors, informed by comparable deals, growth metrics, and the amount of capital needed, rather than calculated by a single formula.
Equity Valuation
Equity valuation for an individual stake means multiplying the number of shares held by the current price per share, but the resulting figure is a paper value until the shares can actually be sold.
Fair Market Value
Fair market value is an estimate of what a share would sell for between a willing buyer and seller. European companies typically use independent valuation reports or HMRC agreed values rather than the US 409A process.
Pre-Money Valuation
Pre-money valuation is the agreed value of a company immediately before a new investment is added, and it forms the basis for calculating the price per share in a funding round.
Post-Money Valuation
Post-money valuation is the value of a company immediately after a new investment is added, equal to pre-money valuation plus the amount raised.
Price Per Share
Price per share equals the pre-money valuation divided by the fully diluted pre-money share count, and it sets the exchange rate between money invested and new shares issued.
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