The formulas, tricks and trade secrets of Private Equity

Pre Money Vs Post Money Valuation

Sample Chapter

Private equity valuation sounds simple enough, so what’s all this talk of pre-money vs post-money? How can a business have a different valuation at the same point in time?

It generally comes down to the purpose and use of your investment. There are two broad options:

  1. Existing Capital – e.g. buy-out an existing stockholder, retire some debt, etc.
  2. New Capital – e.g. invest for growth, invest to make an acquisition, etc.

If you swap your new capital for existing capital (buying out another shareholder or paying down debt), then there’s generally no change to the valuation. However, if you are investing cash as new equity (for growth and/or acquisitions), then you’re increasing the equity value of the business and hence, increasing the EV and overall valuation.

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Private Equity

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