Why does explaining things visually makes it easier to understand? Dan Roan, author of “Back of the Napkin” explains how we can unlock the 75% of our brain power dedicated to visual thinking.

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Dan Roan, the author of “Back of a napkin“, explains visually in pictures using a whiteboard, how big bank executives justify their bonuses.

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Series A investment is provided by an angel investor or angel (also known as a business angel or informal investor) or a Venture Capital firm. Angel’s are affluent individuals who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. They typically have a personal liquid capital available for investing in excess of $1 million. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

A pre-money valuation is a critical term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing.
External investors, such as venture capitalists and angel investors will use a pre-money valuation to determine how much equity to demand in return for their cash injection to an entrepreneur and his or her startup company. This is calculated on a fully diluted basis.
Usually, a company receives many rounds of financing rather than a big lump sum in order to decrease the risk for investors. Pre- and post-money valuation concepts apply to each round.

Pre and post money calculator

If Angel investor wants to invest $15,000 for 5% of your company then this sets the post money valuation of your company at $300,000.

Formula = $15,000/5% = $300,000

Therefore:

Post-money = $300,000
Pre-Money = $285,000
Investment = $15,000

So, angel’s 15,000 investment just bought him 5% of the company (15 / 300).

Then Pre-money value = price of shares * value of shares before financing.
For 500,000 shares, $285,000 = $0.57 * 500,000, or
For 1,000,000 shares, $285,000 = $0.28 * 1,000,000

By saying he is willing to invest $15k in my company for 5% equity, that angel has just defined a post-money value (and pre-value) for your firm.

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Basics of present value, from definition through to how it is calculated.

Present value, also known as present discounted value, is the value on a given date of a future payment. or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful “like to like” basis.

Difference between Present value and Net Present Value

Present value and net present value is the result of discounting future amounts to the present. For example, a cash amount of $10,000 received at the end of 5 years will have a present value of $6,210 if the future amount is discounted at 10% compounded annually.

Net present value is the present value of the cash inflows minus the present value of the cash outflows. For example, to calculate Net Present Value, let’s assume that an investment of $5,000 today will result in one cash receipt of $10,000 at the end of 5 years. If the investor requires a 10% annual return compounded annually, thenet present value of the investment is $1,210. This is the result of the present value of the cash inflow $6,210 (from above) minus the present value of the $5,000 cash outflow. (Since the $5,000 cash outflow occurred at the present time, its present value is $5,000.)

Widget to Calculate Net Present Value

Enter your values in the widget:

Calculate Net Present Value of $1 to Be Paid in the Future

This table (download here) shows how much $1, to be paid at the end of various periods in the future, is currently worth, with interest at different rates, compounded annually.

To use the table, find the vertical column under your interest rate (or cost of capital).  Then find the horizontal row corresponding to the number of years it will take to receive the payment.  The point at which the column and the row intersect is your present value of $1.  You can multiply this value by the number of dollars you expect to receive, in order to find the present value of the amount you expect.

An example showing how to use this table to find the Net Present Value of a major purchase or project follows the table.

Applying discount cash flow to the valuation of a company.

Use the following spreadsheet to calculate the valuation of a sample company. Download here.

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