Archive 30/04/2019

Iagoora Hospitality Solutions Sdn Bhd

Current StatusPre-Revenue
Amount InvestedRM65,000
Funding RequiredRM750,000
DescriptionIagoora bridges that gap between suppliers and buyers by providing a comprehensive listing platform, search engine and sourcing solution. We are not only focused on Food and Beverage suppliers but provide a holistic approach that ensures all hospitality industry segments are on board the platform, creating a one stop solution.
Business OpportunityThere are over 12,000 HORECA industry suppliers in Malaysia. Most are now facing a high sales team cost with no way of tracking their performance or ROI. On the ground marketing style is still the most prevalent strategy which makes it difficult to reach new target audience and gives buyers a hard time finding competitive products and services.
Revenue / Business ModelMalaysia has over 12,000 F&B suppliers and our goal is to have 15% to 20% of them listed on Iagoora by the end of 2021. There are 3 simple packages ranging from a free listing, Standard Membership (RM350) and Premium (RM500). We do not charge any commission rates. Other sources of revenue will be from digital advertising on the Iagoora website pages, web design and data entry services for suppliers and also related third party charges.
Management TeamNicol Roach Reddy (Founder & Team Leader) has worked in the F&B industry for over 18 years, lastly as the Director and COO of Chaswood Resources Holdings Ltd. He has managed business in Indonesia, Singapore and Malaysia with an annual turnover of RM150 million. Founder of The Restaurant Mechanics consultant firm, he is also passionate about working with startups in the industry to help them get on the right track from the beginning.

Muhammad Kashif (Co-Founder & Lead Programmer) has been in the IT sector for more than 15 years. Always developing and keeping up with the latest tech trends. He is skilled in Web Programming, Mobile App UI, SEO, Digital Marketing, Google Ad Word Certified and Project Management. He is an avid traveler and adventurer and owns his own travel site. Kash has numerous professional certifications from universities in USA, Australia and UK. He has work experience in Europe and Asia.

Rajendra Subra (Operations Engineer & IT Tech) has worked in the Hospitality Industry for over 15 years and his most recognized job scope was with TGI Fridays as a Regional Manager for Malaysia managing the business and delivering results to stakeholders. He is now a freelance F&B consultant and joined Iagoora because he strongly believes in the ability of the brand to bring the industry forward. Raj studies IT at the boom of the industry and leads the operations team.
Company BackgroundIagoora Hospitality Solutions Sdn Bhd was founded on 12-01-2018. We started programming the website 4 months later and completed programming on December 2018. Pulling full time jobs both the founders Nicol and Kash work tirelessly to make Iagoora come true. We are now listing our first 20 suppliers and will be targeting to list 200 suppliers in the next 8 months. We have personally invested RM65,000 into Iagoora since it’s inception and are now looking for funding to move forward and grow the brand and business.
Funding MilestoneWe are looking for RM750,000 for the following purposes. Hiring team for sales, marketing, programming and administrative then running operations cost. Building iOS & Android applications, continuous programming, office space, integration with POS. We will be operationally self sustainable when we reach 200 subscribed paying members in 6 to 8 months.
% Equity Allocation7.5%
Expected ROI3 years +
Risks and MitigationBefore we embarked on this project we took time to meet with key suppliers in the country. Their positive feedback and encouragement is what drove us to invest into Iagoora. There is a lack of web technology in the F&B supplier sector which makes it difficult for buyers (restaurants, hotels, cafes & etc) to source for products, vendors and service providers. The problem is faced by both buyers and suppliers alike which is where Iagoora comes in. We are the bridge that links both sides of the divide. Our key suppliers are POK Brothers, Euro Atlantic, TWH Tong Woh, Allied Food Services and many others that we seek advise from.
Exit StrategiesExit strategy for investors if they wish to can be in 5 years time when the business has expanded in the region. We plan to expand into Singapore, Indonesia and Australia in 2021 when we have reached 1,500 suppliers in Malaysia. Option would be to sell shares back to the the founders based on the future valuation at the time of sale.
Company NameIagoora Hospitality Solutions Sdn Bhd
Website/Facebookhttp://iagoora.com/final/
Business AddressB-2-16 Boulevard Residence, Kampung Sungai Kayu Ara, 47400 Petaling Jaya.
Contact PersonNicol Roach Reddy

Supalaunch your business with Venture Capital Firms, Investors and Accelerators in APAC

How do you beat the competition in the fast-paced world of startups in Asia? The right amount of funding is one of the main factors that stands between your company’s success or failure. With no cash, upscaling becomes a longer, more difficult challenge. We’ve shared with you the best APAC countries to start a business, now find out about Asian-focused investors from India to China that you can approach to help fund your startup.

Before we dive in, here’s the difference between venture capitalists, angel investors and seed accelerators. Venture capitalist firms focus on providing funds to startups that they recognise to have high potential for growth. More often than not, they provide more funds than a bank loan and there is no obligation to pay them back if the business tanks. Angel investors operate on a much smaller scale, often investing in a business as an individual or in a small group. For both, mentorship and guidance is optional. Seed accelerators offer the benefits of funding as well as mentorship. Competition to be accepted into an accelerator program is high as successful applicants receive an intensive period (typically 3 months) of training from experienced professionals on how to grow their businesses as well as a monetary investment in exchange for equity.

Here are 10 venture capital firms, investors and accelerators that have been the most active in the past 6 months.

1. 500 Startups (Malaysia)

Investments Made – 11

A renowned Global venture capital seed fund and a startup accelerator from Silicon Valley with over US$250 million in assets under management.

Key Investees/Graduates in APAC:
Grab (Malaysia/SG)
TukTuks (Thailand)
Supahands (Malaysia)
CatchThatBus (Malaysia)

Type of Fund:
Seed
Series A
Bridge/Loan

Investment Round Range:
US$100,000 to US$12,000,000

Top APAC Countries Invested in:
Singapore, Thailand, Malaysia

Top Industries:
E-Commerce
Marketplaces and Platforms
Fintech

2. Sequoia Capital (China)

Investments Made – 10

Known for their collaborative efforts with legendary founders like Steve Jobs (Apple), Elon Musk (SpaceX), and Peter Thiel (Paypal). Sequoia now provides the new generation of innovators the opportunity to build lasting companies of tomorrow.       

Key Investees in APAC:
Kfit (Malaysia)
Zilingo (Singapore)
Gojek (Indonesia)
Futu5 (China)

Type of Fund:
Seed
Series A, B & C

Investment Round Range:
US$1,000,000 to US$200,000,000

Top APAC Countries Invested in:
Singapore, Malaysia, Indonesia

Top Industries:
Social networking & communication
Marketplaces & Platforms
Logistics and Transportation

3. SAIF Partners (Hong Kong)

Investments Made – 8

An Asian-focused private equity firm that focuses mainly on businesses that operate in China or have significant operations or businesses in China.

Key Investees in APAC:
Voodoo (India)
Treebo Hotels (India)
UnionPay (China)

Type of Fund:
Seed
Series A, B, C & D

Investment Round Range:
US$ 200,000 to US $100,000,000

Top APAC Countries Invested in:
India, China, Indonesia

Top Industries:
E-Commerce & Advertising
Marketplaces & Platforms
IoT

4. Microsoft Accelerator (India)

Investments Made – 7

Microsoft Accelerator is a global initiative empowering entrepreneurs around the world on their journey to build great companies by offering 4-6 months programs for later-stage startups.      

Key Investees in APAC:
SadakPlay (India)
Raven Tech (China)
Taihuoniao (China)

Type of Fund:
Seed
Series A, B, C & D

Investment Round Range:
US $ 25,000 to US $ 4 000, 000

Top APAC Countries Invested in:
India, China, Indonesia

Top Industries:
Finance & Marketing
Mobile & Communication
Customer Acquisition

5. Blume Ventures (India) 

Investments Made – 6

One of India’s first venture capital firms that’s focused on early-stage tech companies that also co-invests with partner angel investors and seed funds.       

Key Investees in APAC:
Unacademy (India)
RoadRunnr (India)
GreyOrange (Singapore)

Type of Fund:
Seed
Series A, B

Investment Round Range:
US$50,000 to US $2,000,000

Top APAC Countries Invested in:
India, Singapore

Top Industries:
Software
Mobile
E-Commerce

6. East Ventures (Indonesia, Japan)

Investments Made – 5

An early stage fund VC, incubator and accelerator focusing on consumer web and mobile startups based in Southeast Asia, Japan and USA.

Key Investees in APAC:
Kargo (Indonesia)
Kaodim (Malaysia)
99.Co (SG)
TechinAsia (SG)
Hyper8 (Japan)

Type of Fund:
Seed
Series A, B
Bridge/Loan

Investment Round Range:
US$300,000 to US$4,000,000

Top Countries Invested in:
Singapore, Thailand, Japan

Top Industries:
E-Commerce
Marketplaces and Platforms
Fintech

7. Brand Capital (India)

Investments Made – 5

A venture arm of Bennett Coleman and Co Ltd; over 10 years the venture has partnered in building more than 850+ indigenous brands in India.

Key Investees in APAC:
Yeh China (China)
CityFurnish (India)
MeruCabs (India)

Type of Fund:
Seed
Series A
Bridge/Loan

Investment Round Range:
US$500,000 to US$5,000,000

Top Countries Invested in:
India, China

Top Industries:
Retail
Consumer Durables
Fintech

8. IMJ Investment Partners Pte. Ltd (Japan, Singapore)

Investments Made – 5

A Singapore based venture capital that provides funding to startups in SEA and Japan based on the principles of operational support, equality, and global outlook. They also provide direct operational support and connections for startups en route to success.

Key Investees in APAC:
Carsome (Malaysia)
Pawnhero (Philippines)
Fabelio (Malaysia)

Type of Fund:
Seed
Series A

Investment Round Range:
US$ 50,000 to US$ 2,000,000

Top Countries Invested in:
Indonesia, Philippines, Malaysia

Top Industries:
Lifestyle
Ecommerce
Consumer Internet

9. Kalaari Capital (India)

Investments Made – 5

An India-based venture company investing in tech-related companies in India, as an Indo-US venture partners. They are focusing on poised to break out Startups in India and future global leaders.

Key Investees in APAC:
HolaChef (India)
Curefit (Philippines)
Parablu (Malaysia)

Type of Fund:
Seed
Series A, B, C, D

Investment Round Range:
US$ 500,000 to US$30,000,000

Top Countries Invested in:
Indonesia, India, Philippines, Malaysia

Top Industries:
E-Commerce
Internet
Curated Web

10. Beenext (Japan, India)

Investments Made – 5

Founded by Teruhide Sato and other experienced entrepreneurs and founders, to support thriving startups around the globe with capital, knowledge, experience, operational expertise, and a unique global network. On top of that, they believe in helping entrepreneurs get to the next level by providing a highly unique perspective that comes from investing in startups in 9 different countries.

Key Investees in APAC:
Creo (India)
HappyFresh (Indonesia)
Voonik (India)
Kaodim (Malaysia)

Type of Fund:
Seed
Series A, B

Investment Round Range:
US$ 200,000 to US$40,000,000

Top Countries Invested in:
India, Indonesia, Philippines, Malaysia

Top Industries:
E-Commerece
Internet
Curated Web

Next steps to meeting investors

Research your different options before you start approaching investors for money as some focus only on later-stage startups, some in early-stage. They also tend to focus on a select few industries that is in line with their expertise. Besides that, have you also considered if you are ready to give up part of your ownership in order to scale up quickly? Investors generally place their money in a company in exchange for equity so you will have to face the possibility of not being your own boss anymore.

Finally, when it comes to taking that step to meet potential investors, be resilient. Send your proposal out to a number of relevant companies or individuals and don’t be afraid to use your network to your advantage. Gain exposure for your startup through a mutual contact that is also involved in the startup or investing scene. Getting your business funded is a long but often rewarding process so make sure you have a strong team to support you and stay passionate about your work. Good luck!

by JUINN TAN

Digital Marketing @ Supahands. I crunch numbers, I weave sentences, and my life revolves around my Google Calendar.

Prepay – Online Fraud Prevention Platform for P2P/C2C

Current StatusPre-Revenue
Amount InvestedRM10,000
Funding RequiredRM300,000
DescriptionPrepay is an online web platform which acts as an intermediary for 2 parties (Buyer & Seller) and regulates the transaction to make sure both parties fulfill the deal condition.

1. Automate Buyer payment confirmation & courier delivery arrangement for Seller.
2. Able to prevent online fraud during the transaction process.
3. Acknowledged by Bank Negara Malaysia.
Business Opportunity1. Online fraud & scam is happening almost everyday in Malaysia.
2. Existing solution to prevent online fraud deemed ineffective & inefficient.
Online scams recorded losses : RM266m (2017) , RM398m (2018)

Total Market Users : 21,800,000
Online (C2C) Marketplace : 7,500,000 (Mudah.my as benchmark)
Online Gaming : 14,300,000 (Researched by Newzoo)
Revenue / Business Model1. Payment Channel (Fee per transaction):
-Cash Deposit = rm4 – 1.3%
-Online Banking = rm3.5 – 1.3%
-Debit Card = 3.7%

2. Courier Arrangement (Fee per arrangement):
RM1.50 or 15% (whichever higher) from total courier cost.
Management TeamNik Mohd Azri Azaha – CEO
-3 years experience in logistics.
-Develop & operate online private game server at 16 y/o.
-Bachelor degree in Operation Management.

Muhammad Hariz Mohd Khalil – COO
-4 years diverse experience in trading and construction.
-Bachelor degree in Operation Management.

Nguyen Loi – CTO
-9 years experience in web development.
-Full-stack developer.
-Bachelor degree in Information Technology.
Company BackgroundIncorporated : 20/12/2018

Funding:
Bootstrap for MVP development & legal registration – RM10,000
Funding MilestoneAdministration RM9,000 
Marketing RM75,800 
Payroll RM91,000 
Operation RM79,841 
Development RM26,859 
Professional Fees RM8,000 

Total Required: RM290,500
% Equity Allocation20
Expected ROI20% – 35%/year
Risks and MitigationWe consider secure payment sector as “moderate risk high return” investment where the business model itself is a proven business model in many other countries (US, China, Indonesia & others).

We also consider ourselves as a pioneer in Malaysia for this market where we are focusing on P2P/C2C marketplace instead of B2b/B2C like many other international competitor.

Finally, the growth of Malaysia p2p e-commerce & online gaming will definitely increase the odds where it will directly increase the total potential market for this platform.
Exit StrategiesPeriod : 5years & above

Strategy:
-IPO
-Company Acquisition
Company NameASIA PREPAY SDN BHD
Website/Facebookhttps://www.prepay2u.com
Business AddressLOT 37 JALAN PAUH PUNGGAH KAMPUNG MALAYSIA RAYA 57100 SUNGAI BESI W.P. KUALA LUMPUR MALAYSIA
Contact PersonNIK MOHD AZRI AZAHA

Power Bank Sharing Concept

Current StatusPre-Revenue
Amount InvestedRM95,000
Funding RequiredRM500,000
DescriptionWe are hopping on the sharing economy band wagon by building a power bank sharing eco system in Malaysia. We are providing a service to allow people to rent a power bank instead of purchasing a power bank.
Business OpportunityWe are solving the problem of e-waste in the country. The current non-recyclable waste is with e-waste and we are solving by reducing the e-waste in the country.
Revenue / Business ModelWe are renting the power banks for RM1 per hour and RM15 per day. We will have other sources of income with advertising opportunities, franchising opportunities and sales of machine.
Management TeamWe currently have 2 shareholders and 1 executive share holder.
Company BackgroundWe started our company in February 2018 and our contract with Brezze Singapore started on 1st July 2018 after negotiations. We have 70% of the licensing fee to Brezze Singapore and purchased 5 units of machines. Approximate investment to date is RM90,000. We started placing machines out there since September 2018 and we have 5 machines in public spaces to date and we have accumulated 300 users.
Funding MilestoneWe will be using the funds as per following:
70%: To purchase units
20%: Operations and Marketing
10%: Authority Licensing
% Equity Allocation25%
Expected ROI2 years
Company NameBrezze Malaysia Sdn. Bhd.
Website/Facebookhttp://brezze.my/
Business Address15, Jalan Damansara Endah, Damansara Heights, 50490 Kuala Lumpur
Contact PersonKuhan Ganeswaran

List of Financial Institutions Providing SME Financing in Malaysia

SMEs are a critical component of the Malaysian economy, contributing more than a third of gross domestic product (GDP) and providing job opportunities to more than four million workers in Malaysia. Banking institutions is the main source of financing for SMEs, providing more than 90% of total financing. Provision of SME financing is also complemented by the Development Financial Institutions, Bank Negara Malaysia’s Funds for SMEs.

Read More

What’s Your Valuation? 3 Must-Know Matrixs

What is a Valuation and Why is It So Critical To Know?

Unfortunately, 90% of the entrepreneurs that I meet don’t really know what a valuation is. I totally empathize with all these entrepreneurs’ ignorance because I didn’t know this stuff either when I started raising capital for my first company.  Fortunately for me, I had a few brilliant mentors who taught me what I needed to know. Unfortunately, traditional educational institutions don’t teach these must-know practical skills to entrepreneurs.

Your company’s Valuation is the worth (or value) of your company right NOW.

Unfortunately, your company’s valuation is a very ambiguous number when you’re a privately held company. There’s no private company “blue book” where you can look up its estimated value. In hard-core reality, your company is really worth whatever the last or highest buyer offered you (given that there’s even a market for it).

Calculating private company valuations is an ART, not a science!  It’s a value based upon what can you realistically justify and defend in a negotiation. There’s no one real way to do it, particularly if you’re a start-up.

However, with that said, your company’s valuation determines the ownership that you have to relinquish to investors for the capital that you seek (in an equity deal).

Therefore, it’s very important that you arrive at a justifiable formula and number to pitch and to sell your investors to close your funding. What you determine your company’s valuation to be prior to seeking funding will be initial “sticker price” of your equity.  More likely than not, this could just be the starting point of your negotiations with investors – or if you’ve made the argument well, you could get your asking price.

What Are Pre- and Post-Money Valuations?

Your Pre-money Valuation is the value of your company prior to having money invested in it. Post-money Valuation is the value of your company after the investment (the equation is shown in the diagram). The mistake that most entrepreneurs (and many investors) make is they think the equity price (or share price) is based upon the “Post-Money Valuation.”

It’s NOT!  It’s based upon the Pre-Money Valuation – what your company is worth right now!

Here’s a simple analogy:  Imagine you want to sell your house.  You price your house at $1M based upon your market research for similar homes to yours.  Now, someone wants to buy your house and then put in $4M worth of improvements and refurbishments into it.  Just because they’re going to put money into your house after your deal is done, doesn’t allow you to charge a higher selling price – it’s still only worth $1M – right now!  

You can’t say to the buyer, “Hey – but it’s potentially going to be worth $5M after you put $4M into it so I want to charge you $5M instead of $1M.”  That would be a ridiculous request – right? See how this works? It’s the same with companies – you can’t value your company based upon what the company will be worth after there is money put into it – you must value it based upon what it’s worth before the investment is put into it.  This is a critical mistake 90% of all entrepreneurs make and its why many deals don’t get done – the entrepreneur has over-inflated their company’s current value.  

How Do You do Your Company’s Valuation – A Two Step Process

If You Want to Maintain More Than 50% Ownership,
Then Your Pre-Money Valuation Must Be MORE than the Amount of Capital You’re Raising!

First, keep in mind that there are experts in this field that charge anywhere from $5K – $100K to do a valuation for a company.  It’s considered a skilled art.  However, it’s not difficult to learn.  At this stage of development, your company’s valuation is likely simple enough to do it yourself (or at least get a round-about value) and I suspect you can’t afford a high-paid consultant.

No one knows your company better than you do and when in a pinch – entrepreneurs must learn these new skills to lead their company.

Additionally, this exercise will teach you how to defend your valuation in your negotiations with investors.  This is critical as you’ll never be able to close a deal if you can’t defend what it’s worth (unless you find a highly novice investor that doesn’t want to negotiate).

Also, you should carefully evaluative any matrix you use.  I’ve read the advice of a few of these online funding platforms that describe how to do valuations and the matrixes they offer are very weak (if not wrong).  I say this because many of the matrixes I’ve seen proposed base the valuation too much on the “future value” (post-money valuation) rather than the “current value” of the company (pre-money valuation).  

Now, most entrepreneurs would prefer to use one of these flawed or weak formulas because their valuation looks much higher.  But once again, go back to analogy above of the milk and cereal – unless you’re one of the rare few entrepreneurs that happens find an uneducated, novice investors that will fall for your over-inflated price (value), you’ll likely never raise the capital you seek and likely your company will die.  

It’s much better to be realistic now and create more value if necessary prior to seeking funding (e.g., by staging funding, creating value using one of the “4-P’s” (see below)) if you need to, rather than to fail altogether.

Step #1 – Your Valuation Matrix

As stated above, valuations in privately held companies are determined by market demand, which is a very ambiguous number.  Therefore, a valuation matrix is a formula that makes-up a justifiable argument to demonstrate the company’s value.

Below are three matrixes often used in the industry.  Ideally, if you can use two matrixes and average their findings – it makes for a much stronger argument when negotiating with investors.  However, not all of the matrixes can be used by all companies depending on the stage of development (if you have revenue or not).  Below is an overview of each matrix:

Asset Matrix: (Great for all Companies especially Start-Ups and Early Stage). The Asset Valuation Matrix consists of adding up all of the assets in your company.  Maverick calls these the “4 P’s”: Perception, Proof, Partnerships and Intellectual Property.  The Asset Matrix lists a justifiable assumption for each category and establishes a value, then adds up all the values to arrive at a pre-money valuation.  The categories are: (1) physical assets; (2) management team sweat equity and capital contributions; (3) intellectual property; (4) customer contracts; (5) strategic partnerships and JV’s (joint ventures); (6) goodwill; (7) cash on hand; and (8) other miscellaneous assets.  

Strategic Partnership Matrix: (great matrix for companies with Strategic Equity Partners):  The Strategic Partnership Valuation Matrix involves projecting the company’s valuation based upon the terms of a strategic partnership (e.g., equity for services).  If by definition your company’s worth (valuation) is what the last or greatest purchaser paid for it, then logic states that if you cut an equity deal with a partner for services/products or some value, then you can value your company based upon the value of this strategic partnership.  For example:  If you cut a deal for equity for technology services, you could bid-out these same services to a few tech development companies and then average these bids to determine a value for the equity that you traded for services.  This is a very strong argument and can increase a company’s valuation tremendously.  Because these services are considered “soft-dollar” investments versus “hard-dollars” you should account for this in your discounting factor.  See explanation below.

Enterprise Valuation: (only for companies with revenue).  The Enterprise Valuation is the most widely used valuation matrix.  It is determined by taking your company’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) times a “multiple”.  This valuation matrix is really saying “we know for sure that the company is at least worth X based upon its profit before taxes – so, if we bought the company now, we know it would be worth at least X… times a multiple of Y.”  Now, the question is what is the multiple (Y)?  

To determine your valuation multiple, you can research publicly traded companies in your industry and determine their current valuation multiple.  However, please keep in mind that publically traded companies’ multiple are almost ALWAYS higher due to the liquidity of their shares than privately held companies.  Traditionally, multiples used by most investors for privately held companies are conservative (ranging between 3 and 7), with the majority of investors and investment banks using “3” as their default multiple.  I often get the argument from my tech entrepreneurs that think their multiple should be in the teens – well, don’t count on that! Remember: investors are always going to take a more pessimistic viewpoint.  

Step #2 – Applying your Discounting Factor and Subtracting out Debt

Regardless of what you determine your pre-money valuation to be, investors will almost always apply what’s called a “discounting factor”. It’s a percentage that is applied to the valuation to discount it based upon risk.  (e.g., 20%, 30% or more).  This discounting percentage is based upon many factors (e.g., how strong is the management team, how long to profitability, competition, level of experience, etc.).  It’s a series of weighted questions to determine the level of risk in your deal.  Just keep in mind you’ll need to apply some percentage to your valuation (because investors will if you don’t).  Also, you will need to subtract out any debt the company owes from the final pre-money valuation.

Transforming Your Valuation Into an Equity Offer

Using your pre-money valuation that you just determined, you need to calculate approximately how much of the company you’re willing to sell to get the money you need. Think of this in terms of percentages even though what you’re really selling is stock which is represented in the form of a percentage of ownership. Imagine a scale, and on one side is your company BEFORE you raise capital (now) counterbalanced by the value of the money the investor is investing.

One of the things you’ll notice about most investors is that they are math wizards! They seem to calculate everything quickly in their heads (of course, this is their area of expertise and they do this every day). You have to become as quick as them at these mental calculations to negotiate with any strength.  Therefore, you need to learn a few pre/post valuation mental-calculating short-cuts. At first, it may seem intimidating to a novice.

However, once you see how it’s calculated, you’ll see it’s really not difficult to do. Expect from the moment investors hear your pitch that they are calculating your pre- and post-valuations in their heads to determine what equity percentage they want for the money you’re requesting.  Here’s the math short-cut that starts with the equation:

Pre-Money Valuation + Money Invested = Post Money Valuation

How to calculate pre/post valuations quickly in your head

Example #1: You want to sell 20% equity for $1 million. What are you saying to the investor is your pre-money valuation? Here’s the math:

20% Equity = $1M Investment, therefore,
If 20% x 5=100%, then
$1M x 5 = $5M (Your Post-Money Valuation is $5M).

Remember the equation for Pre/Post Valuations is: (Pre-Money + Investment = Post-Money)
Therefore, Pre-Money + $1M = $5M
Pre-Money = $5M – $1M (the Investment)
Pre-Money Valuation = $4M

You are telling the investor when you ask for $1 million for only 20% equity in your company, that your pre-money valuation (current valuation) is $4 million. Can you justify that?

Note:  A critical mistake that both entrepreneurs and investors make is they forget to subtract out the money invested (part II above).  Remember: you’re seeking the pre-money valuation, NOT the post-money valuation!

Example #2: Let’s try to do it one more time, but now try to do it quickly in your head. You want to sell only 33.3% equity of your company’s to the investor, but you still want $1 million. What are you telling the investor is your current pre-money valuation?
33.3% x 3 = 100%
$1M x 3 = $3M (Post-Money Valuation)
$3M (post money) – $1M (investment) = $2M Pre-Money Valuation

So, you’re saying your company is currently worth $2M.  Can you justify that?

Hopefully, you’re seeing how easily this can be done. With this knowledge, you know now that you must be able to JUSTIFY a pre-money valuation of $2 million if you only want to give up 33% for $1 million. Got it? This is very important in negotiations.