How a VC Firm Makes Money - Accel and Facebook Case Study - Part 2
I’ll show you how to estimate the percentage of equity that Greylock had after investing $27.5 million in Facebook.
$27.5 million is Y% of the post-money valuation.
Here’s the post-money valuation of Greylock’s shares in Facebook:
“Venture capital funding provided by Greylock Partners and other firms totaling $25 million placed a value of $525 million on Facebook, which reportedly turned down $750 million from Viacom.”
Greylock Partners and other firms valued the company at $525 million! This number is important to establish the pre-money and post-money valuation. With this info, we are able to estimate the approximate percentage of the company’s equity being sold.
So, we have $525 million of post-money and the new money is $27.5 million.
This means that Greylock probably got 19% of Facebook.
Now, let’s see what the pre-money valuation is!
As you can remember, the pre-money + new money = post-money.
Pre-money (what Peter, Accel, founders, management, employees, and other unknown investors) + $27.5M = $525 M
So, the pre-money valuation was at that time: $497.5 million—almost half a billion!
In the next post in this series, I show you the differences between rounds of investment. A startup usually receives more than one round of investment and that can affect the number of shares a VC needs to have.