Worthworm Wisdom

Insights for entrepreneurs & investors

What is a pre-money valuation?

Posted by admin on 2013-09-23 04:20:36

 As an entrepreneur looking for funding for your early stage venture, one of the first questions you’ll be asked by a potential investor is how much capital you want to raise. Many businesses need money before they have actual revenues, so in order to know the answer to this question, you’ll need to know your venture’s pre-money valuation.

Your pre-money valuation, or PMV, represents how much your company is worth prior to receiving an investment or financing.

It’s an important number because your PMV determines how much capital you could receive and how much equity your investors will get return. For that reason, it’s also one of the most contentious parts of venture negotiations.

By nature, entrepreneurs want the highest PMV possible (so they receive more funding), while investors want the lowest PMV possible (so they can get more equity). This conflict often leaves both parties at odds, causes disagreements that could tarnish the relationship, and slows down negotiations.

In addition to the debate over the number itself, many entrepreneurs stumble over how to calculate a pre-money valuation because there isn’t a standard methodology that is accepted industry-wide. Several common valuation methods exist (including the Berkus MethodScorecard Method, and Venture Capital Method), but they each use different approaches and, therefore, produce varied outcomes. Up until now, if you wanted help calculating your PMV instead of using one of these methods or dinky spreadsheets, you had to hire a consultant. That may produce a more reliable valuation, but it’s often prohibitively expensive.

That’s where Worthworm comes in.

We’ve created a robust tool that’s way more sophisticated than spreadsheets and way more affordable than hiring consultants. Worthworm provides you with a credible, sound PMV calculation that entrepreneurs can feel confident sharing and defending, as well as interactive tools and reports that help investors complete due diligence.

Curious about how much your venture could be worth? Or looking for a world-class teaching tool? Or are you trying to do due diligence on potential deals?  Then try a subscription to Worthworm, and let us help you.