Pre-Money Valuation
What a company is worth immediately before receiving new investment.
Definition
Pre-money valuation is the agreed-upon value of a company right before a new round of investment. It is used alongside the investment amount to determine how much of the company the new investors will own. Post-money valuation equals pre-money plus the new investment. Pre-money is negotiated between founders and investors during the term sheet process.
Why it matters
Pre-money valuation directly determines how much dilution existing shareholders face. A higher pre-money means investors get a smaller slice, and your existing shares retain more value.
Example
A company has a $40M pre-money valuation and raises $10M. The post-money is $50M, so new investors own 20% ($10M / $50M). If the pre-money were $90M, they would only own 10%.