February 1, 2024

Post-money valuation is a company’s estimated worth after outside financing and/or capital injections are added to its balance sheet. Post-money valuation refers to the approximate market value given to a start-up after a round of financing from venture capitalists or angel investors have been completed. Valuations that are calculated before these funds are added are called pre-money valuations. The post-money valuation is equal to the pre-money valuation plus the amount of any new equity received from outside investors.   What is the Post-Money Valuation? Investors such as venture capitalists and angel investors use pre-money valuations to determine the amount of equity they need to secure in exchange for any capital injection. For example, assume a company has a $100 million pre-money valuation. A venture capitalist puts $25 million into the company, creating a post-money valuation of $125 million (the $100 million pre-money valuation plus the investor’s $25 million). In a very basic scenario, the investor would then have a 20% interest in the company, since $25 million is equal to one-fifth of the post-money valuation of $125 million.   The scenario above assumes that the venture capitalist and the entrepreneur are in total agreement about the pre and post-money valuations. In reality, there is a lot of negotiation, particularly when companies are small with relatively little in the way of assets or intellectual property. As private companies grow, they are better able to dictate the terms of their financing round valuations, but not all companies reach this point. Importance of Post-Money Valuation to Financing Rounds n subsequent rounds of financing of a growing private company, dilution becomes an issue. Careful founders and early investors, to the extent possible, will take care in negotiating terms that balance new equity with acceptable dilution levels. Additional equity raises may involve liquidation preferences from preferred stock. Other types of financing such as warrants, convertible notes, and stock options must be considered, if applicable, in dilution calculations.   In a new equity raise, if the pre-money valuation is greater than the last post-money valuation, it is called an “up round.” A “down round” is the opposite, when pre-money valuation is lower than post-money valuation. Founders and existing investors are finely attuned to up and down round scenarios. This is because financing in a down round usually results in dilution for existing investors in real terms. As a result, financing in a down round is often seen as somewhat desperate on the part of the company. Financing in an up round, however, there is less reluctance as the company is seen as growing towards the future valuation it will hold on the open market when it eventually goes public. Post-Money Valuation Formula Post-money valuation = Value of capital post-infusion Post-money valuation = New investment * (Total post-investment number of shares outstanding /Shares issued for new investment) Thus, increase in value due to fund infusion = Vpost – VpreWhere, Vpost = Value of the firm post-money injunction Vpre = Value of firm pre-money injunction Example of Post Money Valuation XYZ Ltd. is a start-up. It has obtained a series of funding from investors based on business growth needs. The breakup of the same is as follows: – Calculate the post-money value of the company at the end of each round of funding. Solution At Round 1  The first-time company acquired the fund. Hence, pre-money valuation and post-money valuation will be the same. Hence, the value of investment of Mr. B. is equal to $13 million.  At Round 2 Post-money valuation = New investment * (Total post-investment number of shares outstanding /Shares issued for new investment) = $21 million * (7.1 million shares/2.1 million shares) = $71 million At Round 3 = $25 million * (9.6 million shares /2.5 million shares) = $96 million Advantages of Post Money Valuation To obtain the actual value of the firm – The real value of the firm is highly essential to assess at every specific point of time. As a result, with the help of post-money valuation, the real value can be identified. Ensure safeguarding of interest – All business transactions have one or more impacts on business. On obtaining any lending from a financial institution or corporates, it is always inevitable to check the viability of the business interest and the ability of the company to repay it. It will also ensure the business interest of all the stakeholders. Maintains confidence of stakeholders – In post-money valuation, will conduct all scenario analyses for a clear picture of the company’s performance, allowing stakeholders to sustain their interest in its financial viability. Factors to be Considered While Doing Post Money Valuation Current market price – Corporate valuation is highly dependent on the company’s stock market performance and plays a pivotal role in creating market sentiments and building stakeholder confidence. Current capital structure and potential equity conversion – While doing pre-and post-money analysis, one must keep the company’s existing equity component and debt obligations in mind. Along with that, one has to consider the potential equity in the company in the form of ESOP, convertible instruments, and other contractual obligations, which can be converted into equity due to some non-compliance. Limitation in Valuation There are various methods to do the valuation. Each method has its merits, assumptions, and way of calculation. In addition, with a change in an expert, the usage of methods will change, and as a result, valuation figures will also change. Therefore, the amount that arrives is highly subjective. FAQs What is post-money valuation vs pre-money valuation? Post-money valuation is the outside financing or the latest capital injection. In contrast, pre-money valuation is the company’s value, excluding the latest round of funding or outside financing. It is a critical concept in the company’s valuation as it helps determine its worthiness after it receives and invests the money. In contrast, pre-money valuation needs a better idea of the current business value. So instead, it gives each issued share value. What is the safe post-money valuation cap? The safe post-money valuation cap refers to the company valuation estimated containing issuable shares upon conversion. It differs from the safe pre-money valuation cap in some aspects. Investors consider

E-commerce is proving to be a game-changer for businesses involved in the trading of goods. It has emerged as a double-edged sword, benefiting both the retailer and consumer in an era of commercial boon where the latter is prevented from venturing on a shopping trip due to various chores. The roots of Big Basket dates back to 1999, when a group of entrepreneurs in Hari Menon, Vipul Parekh, Abinay Choudari, and V.S. Ramesh laid the foundation to India’s first online business platform – Fabmart.com. This successful foray was followed by the introduction of online groceries, a retail chain of grocery supermarkets called Fabmall (which was sold later), and more recently Big Basket in 2011. The entity is now acclaimed to be India’s largest online food and grocery store with more than 18,000 products and a vast collection of food products sought by the consumer right from fresh fruits and vegetables, rice and dals, spices and seasonings to packaged products, beverages, personal care produce or meat. Mode of Operation BigBasket has classified its online business model as an inventory-led and hyper-local delivery, with the object of covering the entire grocery requirements of customers. Under the inventory model, the online entity procures products from leading food suppliers and stores them in its premises and passes on to the customers from this storage space. On the other hand, unreserved products are given the just-in-time treatment, wherein raw material orders from all suppliers are aligned with the production schedules. Also, the establishment has tie-ups with a range of grocery stores across India to deliver products within 90 minutes. Customers would be delivered products after picking and choosing them and making the online payment. BigBasket entitles the consumer to choose their preferred time of delivery. Locales of Operation BigBasket is now operational in Bangalore, Hyderabad, Mumbai, Pune, Chennai, Delhi, Noida, Mysore, Coimbatore, Vijayawada-Guntur, Kolkata, Ahmedabad-Gandhinagar, Lucknow-Kanpur, Gurgaon, Vadodara, Visakhapatnam, Surat, Nagpur, Patna, Indore, Chandigarh, and Trichy. Ownership Rights The ownership rights of BigBasket are vested with Innovative Retail Concepts Pvt Ltd (IRCPL). The parent company is entitled to collect certain essential information from the users during registration. Categories of Trade The online trading entity deals with a range of categories. A few prominent ones are mentioned below: Toor Dal Health Drinks Sunflower Oils Chocolates Fruits Vegetables Whole Spices Toilet Cleaners Flakes Glucose Marie and Milk Biscuits Diapers & Wipes Mango Juices Registration Process A trader may start selling with BigBasket upon registering with the online trading chain through its website. The following details must be specified for the purpose: Name Mobile number. Name of the company willing to register. E-mail address. Desired password. Desired locale of operation. A profile of the applicant company’s services, including the USP (Unique Selling Portfolio) of the product, tentative margin that can be provided, and whether or not the product in question needs to be stored in chillers/freezers. The applicant may complete the registration processing by clicking ‘Sign Up’. BigBasket would then contact the applicant to further the application process. Selected partners may pursue their operations using the ‘Login’ option. Benefit of Registering with BigBasket Partnering with an e-commerce entity is a given for establishments seeking to promote their business in the age of rigorous schedules, which prompts the need for convenient service options. The partnership may reduce a portion of the sales profit, but a good financier would understand that improved sales would not only make up the cost but would provide more revenues when compared with the produce of the endeavors without the association. BigBasket is considerably the most promising in the sector, considering its unique portfolio and unrivaled business strategy. This factor must encourage FMCG giants to join hands with the entity for faster and efficient promotion of food products. Affiliate Program Considered as India’s largest grocery store with a portfolio encompassing more than 20,000 products and a host of brands in the catalogue, Big Baskets provides brands with the option of an affiliate program, through which they could earn the cost of placing banners or links on its website referring the users to the website of BigBasket. Participating entities could earn up to 7% whenever a user clicks on the banner/link to make a purchase on the BigBasket website. No fee would be incurred on joining the program. Process of Being Affiliated A trader can be an affiliate partner of BigBasket by specifying the various details in the affiliate sign-up page of the website, wherein the details to be filled in are classified into account details, user details, and other additional details. Claiming the Referral Commission Affiliates may claim their commission by raising monthly invoices exceeding Rs. 2000, which should include details of the approved transactions on the affiliate panel, along with the supporting documents. Upon receiving it, BigBasket would release the payments within 30 days from the date of receipt after validating the numbers. Calculation of Affiliated Transactions Browser transactions are computed based on the last click attribution. It is noteworthy that the cookie duration for any referral user from the affiliate’s side to that of BigBasket is stipulated to be seven days, which means the panel will only capture transactions within this timeline. Offline Pursuit BigBasket’s online model of business also needs introduction, but its offline pursuit provides it the tag of an aggressive market player. BigBasket offers delivery within 90 minutes of the order by collaborating with neighborhood stores, the likes of whom would don the responsibility of delivering the products to the customers. The measure has been initiated considering the scenarios where the need for groceries may arrive unplanned, in which case the consumers wouldn’t be in a position to wait for a day or even a few hours.  BB specialty stores now function in Bangalore, Delhi, Gurgaon, Noida, Pune, Mumbai, Chennai, Hyderabad, Kolkata, and Ahmadabad. Big Basket offers products of the following categories through this facility: Cakes and bakery products. Meat products. Flowers. Body care utilities. Ayurvedic commodities. Sweets and savories. Nuts and chocolates. Green Basket BigBasket may well be emulated for its