Pre-money valuation calculator

Pre-money valuation simply refers to the amount a company is worth before it has received any outside investment.

It can be used to help define what a company is worth when seeking funding from investors, or considering going public. And it can help investors decide how much to invest, and for what percentage of the business.

While post-money valuation relates to the amount investors have agreed to pay (ie, a 10% stake for $1 million = a valuation of $10 million), figuring out pre-money valuation can be a bit trickier.

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How is pre-money valuation calculated?

Assessing pre-money valuation can look different for different companies, and that’s especially true for startups and tech-enabled companies. 

There are a few ways businesses can calculate their pre-money valuation, depending on things like revenue and profitability, the market they’re operating in, and the assets they own – whether that’s physical goods (tangible assets), or things like software or IP (intangible assets).

Typically, businesses would start by gathering financial information from financial statements and any other relevant sources, including:

• Assets;
• Liabilities;
• Revenues;
• Expenses; and
• Net income.

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Market approach

A market approach considers the value of other companies in the industry with comparable business models, growth rates and metrics. Valuations for these companies will be available if they’re publicly traded, or if they’ve been recently acquired.

This can, however, be tricky for startups and tech companies that are creating new categories or pioneering with new business models.

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Income approach

The income approach calculates pre-money valuation based on anticipated cash flows, usually over three to five years.

The value of those cash flows is then ‘discounted’, to reflect the company’s risk profile, and the expected return for investors, to apply a present-day value to future cash flows.

This may not work for businesses that are still pre-revenue, or not yet profitable.

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Asset-based approach

Through an asset-based approach, a company’s pre-money valuation is calculated by adding up the net value of the company’s tangible and intangible assets. However, often the ‘true’ value of intangible assets are not realised, as they’re much harder to put a figure on.

Liabilities are also deducted to determine the company’s net asset value.