Pre-Money Valuation

A company's agreed value immediately before a financing round's new money is added.

Example

A round raising 2,000,000 at a 20,000,000 post-money valuation has an 18,000,000 pre-money valuation.

Important

Pre-money and post-money differ by exactly the new money raised - quoting one without specifying which invites a real misunderstanding of the round's terms.

Related terms

  • Post-Money Valuation — A company's agreed value immediately after a financing round's new money has been added, equal to the total resulting share count multiplied by the round's price per share.
  • Valuation Cap — The maximum company valuation a SAFE or convertible note's conversion price can be based on, protecting the early investor from paying a later round's higher price.
  • Cap Table — The running ledger of who owns what percentage of a company, on what instrument and what terms, before and after each financing event.

Lessons that explain it

  • The option pool shuffle quietly lowers the founders' real price — Post-money equals pre-money plus the new investment. But when investors require an option pool to be created inside the pre-money valuation, the existing shareholders bear its full cost. (13 min)
  • The VC method works backwards from the exit — The venture capital method starts from a plausible exit value, divides by the return an investor needs, and adjusts for future dilution to reach what the company can be worth today. (11 min)
  • The scorecard method starts from what similar deals were priced at — The scorecard method takes the typical pre-money valuation of comparable early-stage deals in a region and adjusts it up or down by comparing the company on weighted factors. (10 min)
  • The Berkus method prices progress that reduces risk — The Berkus method assigns a value to each of five risk-reducing milestones a pre-revenue company has reached, with a fixed maximum for each, and adds them up. (9 min)
  • Risk factor summation adjusts a price for twelve named risks — The risk factor summation method starts from a benchmark valuation and moves it up or down in fixed steps for each of twelve categories of risk, making every adjustment explicit. (10 min)
  • Several methods give a range; the gaps show what you believe — No single method values an early company reliably. Running several and comparing the results shows the range of defensible prices and exposes which assumptions drive the difference. (10 min)

All 578 terms in the Investing glossary