A tool designed to estimate the worth of a company before it receives a new round of investment. It determines the company’s intrinsic value before the addition of capital from external sources. For example, if a company is raising $2 million and the tool calculates its value beforehand at $8 million, the firm’s overall worth after investment would be $10 million.
This calculation is critical in negotiating investment terms. It allows existing shareholders and potential investors to understand the equity distribution after the funding round. Understanding the value prior to investment can also help entrepreneurs retain more control over their company while still accessing the necessary capital for growth. Historically, such determinations were often subjective, but contemporary methods aim for a more data-driven and objective assessment.
