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You and your investors determine the value of your company today.
Investor, Entrepreneur, Board Member
Pre-money valuation + capital raised = post-money valuation
Having a bad attorney or no attorney can be the most expensive mistake.
The good startup attorneys defer fees until you raise a certain amount of capital.
Lesson: Fundraising Series Seed with Jenny Lefcourt
Step #8 Terms: You and your investors determine the value of your company today
The rules of pre and post valuation are you, the entrepreneur and your investor's decide what is the value of your company today. Lot of times you just pick a number that feels right to both sides, a lot of times the market dictates that.
So let's just for example pretend that's $4 million, and investors put in $1 million. Well now your post money valuation is $5 million right? It's the four you were worth before plus the million dollars of cash that just came in so now you’re worth $5 million. What you're trying to do is to create value over time, and hopefully if you do your job right, when you go to do your next round your valuation pre-money is significantly higher than your post money from your previous round.
I am bias but I think that one should definitely have a good attorney, I actually have had great attorneys and I have had attorneys that could have cost me a whole lot of money. And so, I think that it's very hard as a startup to spend the money and then even though all the great attorneys will defer their fees until you raise a certain amount, it's still an expense. It's the smartest expense that you can spend because they really cover you, and there's a lot that if you don't do things right will cost you a lot more than those attorney fees. I am, full disclosure, married to an attorney.