Post-money

Post-money refers to the value of a company after an investor or investors have invested their money into the company in an investment round. The phrase is often first cited to investors in a term sheet, which is a short summary document about the terms that a company which is raising capital is offering to its potential investors. The term sheet typically states what the valuation of the company following the investment will be based on a pre-money or post-money valuation. As an example, let’s say that a company is seeking to raise money from an investor, the company and investor agree that the company is worth $10 million, and the investor agrees to invest $1 million into the company. The resulting ownership percentage of the company for the investor will depend on whether the parties agree that the $10 million valuation is pre-money or post-money. If pre-money, then the parties will have agreed that the company was already worth $10 million, and so after the investment the company will be worth $11 million. If post-money, the parties will have agreed that the company was worth $9 million, and so after the investment the company will be worth $10 million. Therefore, under a post-money valuation of $10 million, the investor will actually receive a larger percentage ownership in the company. As a result, the definition of the valuation of the company following the capital raise is one of the critical terms in a term sheet.