3 ms·
> ...a company will raise $1 million on, say, a $4 million pre-money valuation. That gives investors 20%... That gives investors 25%... $1 million into 10 com
by staunch 16y ago
> ...a company will raise $1 million on, say, a $4 million pre-money valuation. That gives investors 20%...
That gives investors 25%...
$1 million into 10 companies for 25% of each. 7/10 of them exit for $15 million returns $26 million. A damn good return, especially if the time frame is short.
Obviously dilution (and other things) can change things, but so can one or two moderately large exits out of the 7.
- othermaciej 16y agoNo, 20% is correct. The share the investor gets is based on the post-money valuation, which is the pre-money valuation plus the amount of cash the company just gained. Working this example in more detail: Pre-money valuation = $4 million Cash invested = $1 million Post-money valuation = pre-money + cash = $5 million Proportion of post-money stock that's worth $1 million = $1 mil / $5mil = 20%
- staunch 16y agoAnd I thought that would never confuse me again...thanks. It's still a big return though, so I don't see the problem with valuations that high.
- timcederman 16y ago"They need 7/10" Not that the average is 7/10. That's the problem with these high valuations.
- zck 16y ago>And I thought that would never confuse me again...thanks. In things like this, it helps to scale it up to 100% -- what happens if a $4 million company takes $4 million from VCs? Certainly the VCs wouldn't own the entire company, so you can't give them a percentage based on premoney valuations.