These terms are important when companies are raising capital. Very simply put,

Post money valuation = Pre money valuation + the capital being raised

Pre money valuation is the valuation of the company without considering the economic impact of the new capital infusion. Its like telling the incoming investor that this is what the company is worth without considering the impact of the new infused capital.

When no capital is put in then the Pre money valuation is equal to the Post money valuation.

When are these terms used?

1. During investment discussions, all parties should clarify that the number being discussed are pre-money or post-money. Post money valuation is usually higher than pre-money valuation and so clarifying what valuation is being said will keep all parties on the same page.

2. These terms are also important during valuation related exercises. When looking at forward looking financials post money valuation multiples are usually used. This is because projected financials will usually be achieved only by using the capital that is being raised. Similarly, when premoney valuation is used when historical financials are used for calculating valuation ratios.

 

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