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I would recommend reading http://www.investopedia.com/ask/answers/114.asp http://www.investopedia.com/ask/answers/114.asp for how valuations work. Don't take t

I would recommend reading http://www.investopedia.com/ask/answers/114.asp http://www.investopedia.com/ask/answers/114.asp for how valuations work. Don't take this as a personal attack: To me it seems you are very confused about the difference between share purchase and investment (these are NOT the same thing). In the world of company founding and funding, these go hand in hand with other things like dilution, vesting, rights of first refusal, "double dipping", and many more (and you practically need to be familiar with them to understand why things work the way they do; other wise, things that are very logical and pragmatic like shotgun buyouts don't make much sense). I don't have the time to give you an answer all of these cases, but when you read on it, keep in mind that EVERY DEAL has both a pre-money valuation and post-money valuation, and the difference between them is exactly the money invested (in a "standard" investment deal). It is important to qualify a valuation (whether pre- or post- money) when you discuss it. I did NOT use one or other valuation; I gave both, to make the numbers clear. Again, until you properly understand the difference between share sales and share issuance (which is what is done in an investment), nothing will make sense. Make sure you have a good grasp of these -- a reasonable test if you got it right is to see if my "ground truth" example makes sense.

logicallee 9y ago
I read that. Thank you for the rest of your comment as well (not taken as a personal attack): I think you have identified one source of my confusion. I closely relate the idea of valuation to share price. I will read up to get a fuller understanding, but could I just ask one question before you go: do the terms "pre-money valuation" and "post-money valuation" or does the term "valuation", mean anything when you buy 100% of the company from me (without issuing any extra shares shares, and the company doesn't get any of your money) for a certain amount? If that amount is $500,000 then what is the pre-money and post-money valuation (if these terms apply). This should clear up my confusion as in this case no extra stock is issued. I will read up on the rest. I want to know if these terms (pre-money valuation; post-money valuation; valuation) even apply in such a case! Thank you for taking the time to understand some of my sources of confusion. Other than this one, I'll try to get a handle on the rest of my questions from other sources.
- beagle3 9y ago
  "pre" and "post" valuations are not relevant terms for a buyout; only for an invsetment; an invsetment goes into the company bank account and increases the value (hence, pre/post) of the company by that amount. in a buyout, an existing owner is paid, and no money goes into (or out of) the company bank account. For a buyout, you usually talk about price (although some people talk about "valuation" in this context too -- nomenclature is not completely standard here).
  - logicallee 9y ago
    Thank you!

logicallee 9y ago

I read that. Thank you for the rest of your comment as well (not taken as a personal attack): I think you have identified one source of my confusion. I closely relate the idea of valuation to share price. I will read up to get a fuller understanding, but could I just ask one question before you go: do the terms "pre-money valuation" and "post-money valuation" or does the term "valuation", mean anything when you buy 100% of the company from me (without issuing any extra shares shares, and the company doesn't get any of your money) for a certain amount? If that amount is $500,000 then what is the pre-money and post-money valuation (if these terms apply). This should clear up my confusion as in this case no extra stock is issued. I will read up on the rest. I want to know if these terms (pre-money valuation; post-money valuation; valuation) even apply in such a case! Thank you for taking the time to understand some of my sources of confusion. Other than this one, I'll try to get a handle on the rest of my questions from other sources.

beagle3 9y ago
"pre" and "post" valuations are not relevant terms for a buyout; only for an invsetment; an invsetment goes into the company bank account and increases the value (hence, pre/post) of the company by that amount. in a buyout, an existing owner is paid, and no money goes into (or out of) the company bank account. For a buyout, you usually talk about price (although some people talk about "valuation" in this context too -- nomenclature is not completely standard here).
- logicallee 9y ago
  Thank you!