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 just before it gets outside money. That money comes from a Category I or Category II AIF. It is based on the company's existing assets, IPR, market size, team expertise and other relevant factors.
Post-money valuation is that pre-money valuation plus the investment being made. It is what the whole company is worth once the new money is in.
This is not just bookkeeping. The post-money valuation decides what share of the company each party owns after the round. That covers the AIF, the founders and any early investors. The investor's stake is its cheque divided by the post-money valuation. Mix up the two figures and every percentage on the cap table is wrong.
How it works
The mechanism in one line: investor stake = cheque ÷ post-money valuation. The cheque is always divided by the post-money figure, never by the pre-money figure. What changes the answer is which number the parties have actually fixed.
When the company's pre-money value is fixed. The post-money figure is that value plus the cheque, so it already includes the cheque. The stake is therefore always smaller than cheque ÷ pre-money would suggest. This is how to read section 14.8.2's warning that if the AIF invests a fixed amount "based on Post-money valuation, the stake in the company will be reduced substantially". The workbook's worked line: 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. Rs 1 crore is 10% of Rs 10 crore post-money, not 11.1% of Rs 9 crore pre-money.
When a headline valuation is fixed but not labelled. Now the reading flips. If the headline is the post-money, the investor divides the cheque by the headline itself. If the headline is the pre-money, the investor divides by the headline plus the cheque, a bigger number. So, for the same headline number, a post-money basis gives the investor the bigger stake — 25% against 20% in the example below.
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. Stake is always cheque ÷ post-money, so for the same headline number, reading it as post-money gives the investor the bigger stake (cheque ÷ headline) and reading it as pre-money gives the smaller one (cheque ÷ headline plus cheque).
- 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-C · Chapter 14: Valuationintroduced here
- Series XIX-D · Chapter 11: 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.
- Pre-money valuationThe estimated value of a start-up immediately before it receives external funding from a Category I or II AIF. Add the new investment to it and you get the post-money valuation.
- 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.
- 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.
- Later-stage capitalCapital from Series C onwards to scale a business — new markets, geographies, product segments or acquisitions — typically from private equity funds and institutional investors, as angels and VCs exit.
- Growth investingA common private equity strategy of taking a minority stake to help a company grow further — typically at the intersection of VC and PE, where the company is still growing but may already be profitable.
- Final Investment MemorandumThe memorandum a PE fund's deal team prepares once the investment committee gives final approval, proposing a specific valuation — which the start-up can still negotiate before final agreements are signed.
- Capitalization TableThe record of who owns how much of a company — every class of shares, each investor's stake and the employee option pool. An AIF's name goes on it when the shares are allotted.
- 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.
- Venture Capitalist MethodA start-up valuation method: estimate the company's value at exit, discount it at the VC's target return, and set the stake needed for the investment — adjusted upward for future dilution.