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Glossary

Pre-money Valuation

Definition

Pre-money valuation is what a company is worth immediately before it takes in new money in a financing round. Add the new capital raised and you get the post-money valuation. Pre-money is the figure founders and investors negotiate, because it determines how much of the company the new investment buys and how much existing shareholders are diluted.

The relationship is simple arithmetic: pre-money plus the new investment equals post-money. If a company negotiates an $8M pre-money and raises $2M, the post-money is $10M, and the new investors own 20% ($2M of $10M). That same $2M raise at a $4M pre-money would cost the founders a third of the company — which is why the pre-money number is the heart of the negotiation. A higher pre-money means less dilution for existing holders and a smaller stake for the new money.

For an angel, it helps to remember that pre-money is the founders' starting ask, while post-money is what actually pins down your ownership. The two move together, but they answer different questions: pre-money is "what do we agree the company is worth today?" and post-money is "what slice does my check buy?" When you come in on a SAFE or convertible note, you usually don't set a pre-money at all — a valuation cap stands in for it until the priced round converts your instrument and a real pre-money gets negotiated.

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