Pre-Money and Post-Money - Business Valuation

The video tutorial explains the concepts of pre and post money valuations, which are used to determine a company's value before and after an investment. It covers methods to calculate pre money valuation, such as industry comparables and discounted cash flow. The tutorial also details how to calculate the number of shares an investor receives, considering fully diluted capitalization and price per share. Additionally, it discusses preferred shares and their conversion into common stock, ensuring investors receive the correct number of shares.

What is the primary difference between pre-money and post-money valuation?

• Pre-money valuation includes the investment amount, while post-money does not.

• Pre-money valuation is calculated after the investment transaction.

• Pre-money valuation is the firm's value before investment, while post-money is after.

• Pre-money valuation is always higher than post-money valuation.

How is the price per share determined in an investment transaction?

• By dividing the total investment by the number of shares.

• By multiplying the pre-money valuation by the number of shares.

• By dividing the valuation by the fully diluted capitalization.

• By adding the pre-money and post-money valuations.

What does fully diluted capitalization include?

• Only common shares.

• Common shares and any options, preferred shares, or warrants.

• Only preferred shares.

• Only options and warrants.

What is a key feature of preferred shares in investment transactions?

• They cannot be converted into common stock.

• They are always more valuable than common shares.

• They always convert into one share of common stock.

• They may have conversion characteristics that convert into more than one share of common stock.

Why is it important to adjust the number of preferred shares in an investment?

• To avoid any conversion into common stock.

• To decrease the number of common shares.

• To increase the value of the investment.

• To ensure the investor receives the correct amount of shares.