# Valuation Question

Here is a question for the mathematically inclined.

Consider a company that is planning to raise money. A VC offers it \$13 million in 3 tranches:

• Tranche 1: Pre-money of \$5 million, VC invests \$5 million
• Tranche 2: Pre-money of \$12 million, VC invests \$4 million
• Tranche 3: Pre-money of \$20 million, VC invests \$4 million

What is the effective (blended) pre-money valuation of the company after the \$13 million has been invested?

I ask this question because it requires some calculations and understanding of how investing works. Even VCs who are supposed to know investing got the calculation wrong in this case!

## 8 thoughts on “Valuation Question”

1. I think the valuation of the company after it has taken the last tranche is \$24 million with the initial stake holders owning about 26.67% of company which is about \$6.4 million.

Siddharth

2. I may not be a VC, just interested in the calculations.
Here is a definition of pre-money
http://en.wikipedia.org/wiki/Pre-money_valuation

Tranche 1 :
Pre-money = Post-money – Investment = Investment (TotalShares/SharesIssued – 1)
= Investment (1/Ownership – 1)
5 = 5 (2-1)
New Ownership = 1/2 = 50%

Tranche 2:
12 = 4*(4-1)
New Ownership = 14 = 25%

Tranche 3:
20 = 4 (6-1)
New Ownership = 1/6 = 17% (not sure to get anywhere with this new found ownership )

Now I’m not sure to understand the meaning of “Effective Pre-money” but according to this
http://www.docstoc.com/docs/13153/Venture-Hacks-Cap-Table-Example/
Effective Pre-Money is the value of the Common Stock and Pre-Money Options, i.e. it does not include the Debt and Post-Money Options.
Effective Pre-money = Pre-money options + value of the common stock

disclaimer: I’m not a finance person.

3. \$ 1.18 million?

p.s: must be a true indian startup scenario;)

4. Right after the 3rd round, the post-money valuation is \$24M.

Pre-money after the last tranche of investment could be anything (higher or lower than \$24M), depending on when the next round of investment is and how the business is performing, and the general market environment.

5. Just after 3rd round the pre-money valuation will be 24M (or is it 36M??)….i am not sure.

The investor will own ~71% and founders will own 29% …that part i think i am right!!

Kasi

6. \$18.9 M.

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