This tool assists in determining the valuation of a company before and after an investment. It helps calculate the worth of a business prior to receiving funding (pre-money valuation) and its worth after the funding is included (post-money valuation). For example, if a company is valued at $1 million before investment, and receives $500,000 in funding, the post-money valuation becomes $1.5 million.
Understanding these valuations is crucial for both the company seeking investment and the investors providing capital. It allows for accurate assessment of equity distribution, dilution, and potential returns. Historically, miscalculations in these valuations have led to unfavorable investment terms and disputes between parties, highlighting the importance of precise computation.