Key Startup Valuation Terms

• Enterprise value (Company Value):  The total value of the company, which is the value of the equity plus the value of the debt (think the value of a house, which is the value of the deposit, plus the value of the mortgage)
• Equity value: Enterprise value minus debt plus cash (think the value of the house minus the amount of the mortgage plus any cash that may be in the house)
• Cautian: if pre-money valuation is $10m and $5m is invested in the company, the post money valuation will be $15m, and the new investor will receive 33.33% of the equity of the company ($5m divided by $15m). The existing share holders ownership of the company will get diluted (reduced) by 33.33%
• Pre-money valuation:  Value of the equity of the company before the investment in the company. It is the valuation the investors are assigning to the startup on a stand-alone basis(i.e. before the company receives their investment)
• Post-money valuation:  Value of the equity of the company after the investment in the company
• Example: if pre-money valuation is $10m and $5m is invested in the company, the post money valuation will be $15m, and the new investor will receive 33.33% of the equity of the company ($5m divided by $15m). The existing shareholders ownership of the company will get diluted (reduced) by 33.33%, from 100% to 66.67%
• IRR or Internal rate of return: It is the annual rate of return achieved (or targeted) by the investor (e.g. a 50% year IRR means their investment will grow at a 50% each year for five years)