Louis-Antoine Muhire, is a Rwandan who made a new life in Canada as a Police Intelligence Officer. However, in spite of his success there, he decided to return to Rwanda to build a better remittance system, inspired by his own frustration sending money back home.
After three years of work, his company, Mergims, has now raised 4 rounds of funding and is valued at 5 million US dollars. Here, he's discussing the difference between pre-money valuations and post-money valuations as well as why you have to understand these terms if you're going to raise investment:
So [they're] kind of financing terms that founders have to definitely understand. Otherwise when you go to pitch, they will challenge you, try to mess with that "oh, what's the pre-money, post?"
It's nothing really sophisticated, it's just the money before and the money after that. So especially when I was starting to raise half a million, then investors become greedy, they want to take more of your company for less investment.
The pre-money valuation is the value you have before you get the funding. Like today, how do you value a company with such projections, 2.5 million. But once someone has invested in your company, say you put 200k only, then our post-money the money after it has been invested will be 2.7. So it's simple, it's a very simple calculation.
The letter, the post-money valuation, if the amount you're raising is not changing then you may give him more for his money. More shares for his money. But before, he may make the money, get the money you want necessary to make the company what you want.
So now with the projections you're seeing with the market you're covering, the traction, then we can say "ah, this year we will valuate up 2.5 million" that's our pre-money valuation. So now we're raising 500 then post-money will be 3 million for us.