What is Pre-Money Valuation?
Pre-money valuation is what your company is worth before receiving new investment. It's the value investors agree the business has based on traction, team, market, and potential.
When someone offers $2M at a $10M pre-money, they're saying your company is worth $10M today, and their investment will make the post-money valuation $12M.
Why Pre-Money Valuation Matters
Pre-money directly determines how much equity you give up. Higher pre-money means less dilution for existing shareholders. Lower pre-money means investors get more ownership for the same dollars.
Founders often focus too much on valuation and not enough on other terms. A high valuation with aggressive liquidation preferences or anti-dilution can be worse than a lower valuation with clean terms.
What Drives Valuation?
Revenue and growth rate. Team experience and track record. Market size and timing. Competitive dynamics. Investor demand and market conditions. Previous round valuations and comparable companies.
Post-Money Valuation = Pre-Money Valuation + Investment Amount
Investor Ownership % = Investment Amount ÷ Post-Money Valuation
Funding round terms:
- Pre-money valuation: $8,000,000
- Investment amount: $2,000,000
- Post-money valuation: $10,000,000
Investor ownership = $2M ÷ $10M = 20%
Founders retain 80% of the company after this round (before any option pool).