Post-money valuation
Also written Post-money
A start-up's pre-money valuation plus the new money going in — the number that fixes what percentage of the company the incoming investor owns after the round.
In plain language
Pre-money valuation is the estimated value of a start-up immediately before it receives external funding from a Category I or Category II AIF, based on its existing assets, IPR, market size, team expertise and other relevant factors.
Post-money valuation is that pre-money valuation plus the investment being made — the overall worth of the company including the new money.
The distinction is not academic bookkeeping. The post-money valuation determines the ownership percentage of the AIF investing in the company, and of the founders and early investors, after the investment is made. Get the two the wrong way round and every percentage on the cap table is wrong.
How it works
The workbook makes the point through the investor's exposure: if the AIF decides to invest a fixed amount based on post-money valuation, its stake in the company will be reduced substantially compared with pricing the same cheque off the pre-money number. The same rupees buy a smaller slice, because the denominator has grown by the size of the cheque itself.
Its worked line is short enough to memorise: ABC Venture Fund wants to invest Rs 1 crore in Co. XYZ for a 10% stake at a post-money valuation of Rs 10 crore. The pre-money valuation is therefore Rs 9 crore — post-money minus the new investment.
The number has a second life in valuation. Under the IPEV Guidelines' price of previous transaction method, when the AIF makes a follow-on investment in a company, the pricing of that round becomes the implied market value which can be applied to the entire holding. So a post-money valuation agreed in a negotiation becomes, later, the input to a fair value mark that drives NAV — and through NAV, the manager's fee and carry. For the first investment, though, the holding is carried at cost and revised only when a follow-on round prices it.
The formula
Post-money valuation = Pre-money valuation + New investment
Investor stake = New investment / Post-money valuation
Pre-money valuation = Post-money valuation - New investment
A worked example
Kaveri Growth Fund, a Rs 600 crore Category II AIF, is investing Rs 45 crore in a B2B logistics platform. The founders and the fund agree on a valuation of Rs 180 crore, and then argue about which valuation it is.
If Rs 180 crore is PRE-money
Post-money = 180 + 45 = Rs 225 crore
Kaveri owns = 45 / 225 = 20.0%
If Rs 180 crore is POST-money
Pre-money = 180 - 45 = Rs 135 crore
Kaveri owns = 45 / 180 = 25.0%
The same cheque, the same headline number, five percentage points apart — worth Rs 11.25 crore of the company at the Rs 225 crore mark. One word in the term sheet.
Assume the pre-money reading prevails and Kaveri holds 20%. Two years later the company raises Rs 100 crore at a Rs 500 crore post-money.
Pre-money of the new round 500 - 100 = Rs 400 crore
Kaveri diluted 20% x (400 / 500) = 16.0%
Value of Kaveri's holding 16% x Rs 500 crore = Rs 80 crore
Cost Rs 45 crore
Unrealised multiple 1.78x
And that Rs 500 crore post-money is now the price of previous transaction at which Kaveri may carry the position — a valuation set by somebody else's negotiation, flowing straight into the fund's NAV.
Why NISM asks about it
Chapter 14 (Valuation), section 14.8.2, defines pre-money and post-money and carries the Rs 1 crore for 10% example; section 14.8.3 then uses a round's pricing as the IPEV price-of-previous-transaction mark. Expect the arithmetic in both directions, and a question on what a fixed cheque buys when priced off post-money instead of pre-money.
Common exam traps
- Stake equals investment divided by POST-money, never by pre-money. This single line answers most questions in the section.
- A bare 'Rs 10 crore valuation' is ambiguous until you know which one. Pricing off post-money gives the investor a smaller stake for the same money.
- Post-money minus the investment is the pre-money — the workbook does that subtraction explicitly.
- Post-money is a negotiated price, not a fair value. IPEV still requires the first investment to be carried at cost until a follow-on round prices it.
- An option pool created around the round changes the percentage without changing either valuation. Read the cap table, not the headline.
- Down rounds are priced the same way, and are what trigger anti-dilution protection.
Where this is taught
- Series XIX-D · Chapter 11: Valuationintroduced here
- Series XIX-C · Chapter 14: Valuationintroduced here
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Fair valueThe theoretical futures price — spot plus the cost of carrying the commodity to expiry — at which a buyer is indifferent between buying today and buying forward.
- IPEV GuidelinesThe international best-practice guidelines for valuing unlisted private equity and venture capital investments at fair value, setting out seven widely used methods for valuing a portfolio company.
- Full RatchetThe harshest anti-dilution formula: after a down round, the earlier investor's preference shares convert at the lowest price the company has issued at, as though it had invested at that price all along.
- Option poolThe block of shares a company sets aside for employee stock options — its size matters to an investor because every option exercised dilutes the investor's stake.
- Corporate Venture CapitalA large firm taking an equity stake in a small innovative company, often adding management and marketing expertise — a strategic on-balance-sheet investment rather than a pooled fund.
- Customer Acquisition CostThe average cost of winning one new customer — read against customer lifetime value, it says whether a start-up is buying revenue at a profit or at a loss.
- Churn RateThe percentage of customers who discontinue using a product or service over a given period — the metric that decides whether acquired customers are an asset or a leaking bucket.
- Net Promoter ScoreA customer-loyalty score from a single question — how likely are you to recommend this — computed as the percentage of promoters minus the percentage of detractors.
- Cash BurnThe rate at which a start-up spends its cash — set against the money in the bank, it says how many months of runway are left before the next round has to close.
- Down roundA financing round priced below the valuation of the previous round — the event that triggers anti-dilution protection and re-prices every earlier investor's conversion.