Venture capitalists and others in the venture community generally conclude that the post-money value of a venture is determined by dividing the amount of the most recent round of financing by the proportion of the company (on a fully diluted basis) acquired. Hence, an investment of $4 million that buys 40% of a company suggests a $10 million post-money valuation ($4,000,000/.4=$10,000,000).
This is absolutely correct and perhaps irrelevant at the same time. If you want to sound savvy when conducting negotiations with your investors, you need to understand this math and its application.
That said, just like with the discussion about pre-money valuation, there is a limit to the relevance of this calculation. It is widely used and understood, so you should use it and understand it.
That said, the value of the business after the investment is, in principle, what it always has been and always will be: what someone is willing to pay to own it all.
The theoretical price implied by an investment is relevant--even to determining what someone might pay for the business--but the value is more closely tied to other factors.
If Google will buy your business tomorrow for $1.65 billion, as they did with YouTube, then the valuation of your last investment round is hardly relevant. If you've spent the money you received in your last investment round and didn't get anywhere, the theoretical post-money valuation is no longer relevant.
People are always asking what their businesses are worth. No matter how many market multiples or how many discounted cash flow analyses we run, the value of the business we determine is only indicative--and is subjective. At the margins, the quality of the advice you get during negotiations, your motivation to sell and the motivation of the buyer can have a major influence on valuation.
So, is your post-money valuation actually what the VC tells you it is? Yes and no. For many purposes, it's the best number you've got. A portion of your business sold, therefore indicating a value for the whole. Utlimately, however, your business is worth what someone will pay for it.
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