Full Definition
Pre-money valuation is the estimated value of a company immediately before receiving a new round of investment. It is used to calculate how much equity investors will receive for their investment.
Pre-Money vs Post-Money
The relationship is simple: Post-Money Valuation = Pre-Money Valuation + Investment Amount
For example, if a company has a $10M pre-money valuation and raises $2M, the post-money valuation is $12M. The investors would own $2M/$12M = 16.67% of the company.
What Determines Pre-Money Valuation
- Revenue and growth rate
- Market size and opportunity
- Team strength and track record
- Competitive landscape
- Comparable company valuations
- Stage of development and traction
- Market conditions and investor appetite
Pre-Money & Post-Money Calculation
Pre-Money + Investment AmountInvestment ÷ Post-Money × 100$15M pre + $5M invest = $20M post → Investor gets 25%Real-World Example
A startup negotiates a $15M pre-money valuation. With a $5M investment, the post-money is $20M, and the investor receives 25% equity.
Frequently Asked Questions
What is the difference between pre-money and post-money valuation?
How is pre-money valuation calculated?
What is a good pre-money valuation for a seed round?
Related Terms
The value of a company immediately after receiving new investment in a funding round.
The estimated monetary worth of a company, determined through various methods and negotiations.
The reduction in existing shareholders' ownership percentage when new shares are issued.
The first major institutional venture capital funding round, typically following seed funding.
A non-binding document outlining the key terms and conditions of a proposed investment deal.
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