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When a company decides that it must raise capital, a key question that must be answered is how much the company is worth. For example, if the business needs $500,000 to get started and/or grow, how much of the equity in that company should $500,000 command? Once this question is answered, the company will go out and try to find investors. When doing so, a key question often arises as to whether the valuation is “pre-money” or “post-money.”
“Before the money" or “pre-money” and "after the money" or “post-money” denote simple concepts. However, these simple concepts can even confuse even the most sophisticated analysts at times. If a company is valued at $1 million on Day 1, then 25 percent of the company is worth $250,000. However, there may be an ambiguity. Suppose the company and the investor agree on two terms: (1) a $1 million valuation, and (2) a $250,000 equity investment. In this case, the company may offer the investor 250 shares for $250,000. Immediately there can be a disagreement. The investor may have thought that equity in the company was worth $1,000 per percentage point, in which case $250,000 gets 250 out of 1,000 shares or a 25% equity position. Conversely, the company may have believed that the investor was contributing to the enterprise which was already worth $1 million. Under this rationale, the $250,000 would give the investor 250 shares out of 1,250 shares or a 20% equity position.
The critical issue was whether the agreed value of $1 million to be assigned to the company was prior to or after the investor's contribution of cash (pre-money) or post-money.
In the above case, a pre-money valuation of $1 million and a post-money valuation of $1.25 million were equivalent. Because mixing up the terms could significantly increase the cost of capital raised, companies must be sure to understand the two metrics and agree with investors to the metric that raises them the capital at the appropriate price.
The time of relying on Fiat Money and investments may have passed. Fiat Money is legal tender that is not backed by tangible assets. These assets have historically been gold, silver, or other forms of metal that have for thousands of years been used as currency or to back currency. Fiat Money or other intangible vehicles of finance have begun to collapse as the terms of their use and the structure upon which they were secured have begun to crumble. Placing liens on or lending out against tangible assets has allowed for the exaggeration of wealth that is neither supported nor real. Such fake wealth cannot sustain itself as has been seen with the collapse of world markets and the investment vehicles upon which these markets have been built. Although it was quite a run and these investments proved highly profitable for many during the cycle, the ramifications and destruction of such financial deceptions may not be known for quite some time.
So, what to do? Where to turn?
The focus from investors has come back full circle to where it should have remained the whole time. Investors, banks, and even governments are turning to tangible or “honest” assets as a way to offer some sort of stability to the marketplace, but also as a way to protect themselves in these uncertain times. People all over the world are literally scrambling to transfer the wealth that is left into something more secure or are holding on to the tangible assets that they have. This trend is global and on a large scale as countries such as China are secretly buying up gold and thus securing their future as a world power and leaving others trying to catch up.
As an average investor, experts are suggesting that that up to 20% of wealth be transferred from paper wealth to tangible assets such as gold and silver that can be held in these uncertain times. It has also been suggested that investments in mining or other stocks that are linked to honest money and therefore are more tangible.
Many investors that are familiar with gold holdings in the US are wary to stockpile gold in uncertain times with the government because of FDR calling in all gold during the Depression in 1933. For those unfamiliar with this, the government called in private gold holdings essentially making it illegal for individuals to own gold. The government needed to own as much gold as possible in order to print more money to circulate into the economy since, at that time, all printed (fiat) money had to be backed by actual gold and silver holdings (honest money). The government bought all the gold at $20.22 per ounce and reevaluated the gold at $35 which gave them the money they needed for projects.
This scenario will probably never happen or need to happen again because in the 1970's the United States abandoned the Gold Standard and started printing unsecured money. So, honest money is not only increasing in value, but is also somewhat protected by fiat money and investments. Gold is now valued according to the free market and fluctuates depending on supply and demand, the strength of the dollar, and trading. Therefore acquiring honest assets is a safer and smarter bet perhaps now more than ever.
Need cash now?
While buying and keeping honest assets is presently the best way to secure your financial future many people are looking to the currently high gold and silver market to take care of their immediate financial needs. There are many outlets for people to sell the gold they already have. If you currently have gold bullion holding then you can work with a broker to sell your gold on the open market. Generally there is about a 5% loss with fees, but that is much less than other penalties or fees on other transactions such as pulling money from a 401K and with the strong gold market you will be getting top dollar.
Many people may not have stockpiles of gold or silver, but they may be able to take advantage of the high rates by selling their gold or silver coins, jewelry, and other items. There is a whole industry where companies will buy unwanted scraps, collectables, etc. and give current market rates. It's an easy way to get quick money, but the seller needs to take the time and investigate the company to make sure that they are getting top dollar and there are proper insurances and guarantees in place.
Getting started:
To learn more about buying or selling gold the best place to look is the internet where there are literally hundreds of articles on the current market trends, prices, and brokers for buying and selling. Make sure to do your research on the company or broker to make sure that you are getting the best rates and you are protected. No matter whether buying for future security or selling for current needs gold is a good, sound, investment and it's a good time to take advantage. You can even sell the pieces you currently have and make reinvest the money in honest investments to prepare you for the future. Either way, the time to act is now when fiat investments are most volatile and the supplies of honest investments are quickly being acquired.