4.4.1: Valuation: Certain Terminology--Pre-Money; Post-Money

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Abstract

When a founder determines it is worth his while to attempt to raise money for his concept, price becomes the primary issue. If, for example, the business needs $500,000 to get started, how much of the equity in that company should $500,000 in fresh cash command? A brief summary of common terminology will help illuminate the subsequent discussion. The word "capitalization," or its abbreviation "cap," is often used in pricing start-ups, with, on occasion, differing meanings.'[1] The "market capitalization" or cap of a company refers to the result obtained by multiplying the number of equity shares outstanding by some assigned per share value. If it has been determined that a share of stock in the company is "worth" $10 and the company has 100,000 shares outstanding,[2] then its market cap is $1 million. The second use of the term has to do with the rate at which future flows