Pre-money Valuation

Pre-money valuation is the value placed on a company immediately before a new investment enters it. Adding the investment amount gives the post-money valuation. The investor’s stake is calculated on the basis of these two figures.

Calculation

• Post-money valuation = pre-money valuation + investment amount
• Investor’s stake = investment amount ÷ post-money valuation
• Price per share = pre-money valuation ÷ fully diluted number of shares before the investment

Example: If USD 2 million is invested in a company with a pre-money valuation of USD 8 million, the post-money valuation is USD 10 million and the investor owns 20% of the company.

Fully Diluted Shares and the Option Pool

The most overlooked point in valuation negotiations is how the number of shares is calculated. A “fully diluted” calculation counts, in addition to existing shares, granted options, shares arising from instruments such as a SAFE or convertible note and the option pool reserved for employees. If the investor requires a new option pool to be included in the pre-money valuation, only the existing shareholders bear its dilutive effect. The same pre-money figure can therefore leave founders with very different percentages depending on how the pool is calculated.

Position under Turkish Law

Under the Turkish Commercial Code, shares cannot be issued below their par value (TCC Art. 347). The valuation determines how far above par value the shares are issued; the difference is share premium and is added to the general legal reserve (TCC Art. 519). The investment agreement should therefore show clearly how much of the investment is share capital and how much is share premium, as well as the number of shares to be issued. The current shareholding is tracked in the cap table.