- Pre-money there are 1,000 shares, valued at $1,000 each
- The company sells 100 new shares for $1,000 each
- Post-money there are 1,100 shares
So after selling 100 shares, the original owner now owns 1,000/1,100 shares = 90.9%. The new valuation is 1,100 shares * $1,000/share = $1,100,000.
If company is worth 1m, and someone invests 100k, they get 0.1/(1+0.1) (current value of company + additional $100k after investment) worth of shares, what gives investor c. 9% of shares.
Founder now has 91% of shares, what still give him $1m. (91% x $1.1 = $1m)
It has a calculator that provides economic breakdowns and a supporting article defining the key terms of a term sheet.
Why? It is still 1 million dollars. The only difference is that the owner now owns 0.9M$ worth of company shares and 0.1M$ cash.
The rest of the company still has the same value, plus some (unclear) amount from having successfully raised money.
I assume the definition of raising money is that the original owner gives some percentage of the company to a new owner, and the new owner gives an amount of money to the company.
Let's say the company's valuation is 1 million dollars. Let's say the owner sells 10% for 0.1 million dollars.
In a perfect market the company's new valuation is obviously 1.1 million dollars: the original value in the company's resources (people, etc...) plus the 0.1 million in the bank.
On the other hand in a perfect market perfect owners made a deal in which the original owner's wealth is the same before and after the deal.
Before the deal he was worth 1million. After the deal he is worth 0.9*x, where x is the new valuation of the company.
So:
1million dollars = 0.9x
x = 1.1111' million dollars
So which is the correct new valuation: 1.1, or 1.1111'? Or something different?
Maybe the deal have to be made in infinitely small pieces, so the result is coming from some kind of differential equation?