Update – Another post about this discussion :: http://continuations.com/post/149697635535/pre-money-vs-post-money-valuation-best-practice
Interesting post out today getting lots of Internet chatter, from a blog I have not read before – http://robgo.org/2016/08/29/quick-post-post-money-valuations/
The short of it is the discussion around how a new investor, say a seed stage VC like myself, wants to see the term sheet expressed in post-money valuation terms versus pre. I am not an expert at this by any means so I won’t claim to be but I think this paragraph really nails it though as to why this is happening:
Today, nearly all early stage term sheets I see are expressed as post-money valuations. The main reason for this, I think, is that there has been such a proliferation of convertible notes, SAFE’s, and other instruments that it becomes tough for a new investor to feel confident that they fully understand a company’s cap table prior to an investment. On top of this, the rise of multiple seed rounds prior to an early stage investment further complicates matters, since you might have multiple notes stacked on top of each other, each with different discounts, caps, etc.
Lots of startups are taking notes – which I won’t diss but generally it means there is very little paperwork, not much due diligence and many of the documents needed for an equity round have not been created or finalized. So when the equity guy comes around, they want to get things all cleaned up and sometimes the only way to do that is to get the post money math all worked out.
I think it is a good thing for the startup and the VC.
Your mileage may vary.
On this point I will also add that if you are a startup raising money and you have NOT read this book – you are entering into a complex deal without the knowledge you need to negotiate it.
Read the book :: Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist