Module 44.4 LOS 44.j and Module 44.5: Calculate Venture Capital Ownership Fractions, Including Over Multiple Rounds

When we are analyzing a new company, we will have a post-money value and a pre-money value. The post-money value is the present value of the estimated exit value of the company. The pre-money is the difference between the post-money value and the investment amount.

POST = PV(exit value)


These two concepts are important when we are trying to determine the number of new shares to issue to the venture capitalist making an investment.



If multiple rounds of process are involved, we must do the process multiple times, with discounting. For instance, for two rounds of financing, we discount calculate the post-money value during the second round, which leads to the pre-money value during the second round. This is discounted to get the post-money value for the first round.

After the second round, the first-round investor’s share dilutes from ƒ1 to ƒ1(1 − ƒ2).

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