Valuation

Also called Pre-money, Post-money, Company value

What the company is worth — which means something different to an investor, a buyer and a tax inspector.

What it means

A valuation is an estimate of what a business is worth. There is no single correct figure; there are methods, each answering a slightly different question.

Pre-money valuation is the value agreed before an investment goes in. Post-money is that plus the investment. The investor's percentage is investment ÷ post-money.

Why it matters

In a funding round it determines how much of the company the money buys. In a sale it determines the price. In both cases the number is negotiated, and the negotiation is usually between someone who does this professionally and someone who does it once.

What it looks like in practice

The common methods: a multiple of EBITDA for established profitable businesses, a multiple of revenue for growing ones, discounted cash flow where the future is predictable, and asset-based for asset-heavy or failing businesses.

For an early-stage company with little revenue, valuation is closer to a negotiation about dilution than a calculation. Both sides know it.

Sector multiples are public information. Find out what businesses like yours actually sell for before the conversation.

What to watch out for

A high valuation with harsh terms is often worse than a lower one with clean terms. Liquidation preferences, especially participating ones, can mean founders receive far less than the headline implies.

Valuations for tax — share schemes, gifts — follow different rules and need to be agreed with HMRC in some cases.

Where to get proper advice

A corporate finance adviser for a real transaction. Your accountant can prepare the underlying figures and normalise them.