Your valuation must fit within our risk/reward expectations for any investment to be made. The most common reason for breakdown in the process is over widely divergent valuations between the entrepreneur and the potential investors. Typically, we look for pre-money valuations below $2 million, from as little as $250K.

Full-dilution In determining valuation we take into account the effect of all commitments to issue shares, i.e., the “fully-diluted” number of shares.  We expect a reasonable number of shares to be already reserved (and counted as part of full-dilution) for filling out the key management slots and for other employee stock options.

Pre-money valuation The pre-money valuation is the value you put on your company before obtaining the capital you seek. This is calculated by multiplying the fully diluted shares immediately prior to the proposed financing (i.e. 1 million) by the price/share of the proposed financing (i.e., $1/share) to arrive at the pre-money valuation ($1,000,000). If you add the proposed financing amount (i.e., $500,000) to the pre-money valuation you get the post-money valuation ($1,500,000).

Pre-money valuation based on percent of company
Some entrepreneurs are more used to thinking in terms of offering some percent (i.e., 20%) of their company for some amount (i.e., $200,000) of financing. Numerically, divide the proposed financing ($200,000) by the offered percentage (20%) to get the post-money valuation ($1,000,000), and subtract the angel money ($200,000) from the post-money ($1,000,000) to get the pre-money valuation ($800,000).  These simply represent two different ways to calculate the valuation.

Investment value vs. company valuation It is important to keep in mind that early stage investors will likely have their equity interest in your company diluted (made smaller) by later investors.

For example, if GAN members invest $500,000 at a pre-money valuation of $1,000,000 (thus owning 33% of the company), and then a venture capital firm invests $5,000,000 the following year at a $5,000,000 pre-money valuation, the original angel group investors will now own only half as much of the company, even though the company value has increased more than three-fold. As a result, because of the early stage at which we invest, you should know that angel group members generally receive 25-50% of the company’s fully diluted equity in exchange for their investment.

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