Pre-money valuation

How it works

Pre-money is the headline number negotiated in a priced round. If a startup is valued at $10M pre-money and raises $2.5M, the post-money valuation is $12.5M, and the new investors own $2.5M / $12.5M = 20% of the company. Pre-money is the founder-friendlier framing because it doesn't bake in the dilution of the new round.

Related terms

• Post-money valuation
  Post-money valuation is what a company is worth after the new investment is added (pre-money + the amount raised).
• Valuation cap
  A valuation cap is the maximum valuation at which an early investment (SAFE or convertible note) will convert into equity, protecting the investor from being diluted if the company's valuation skyrockets.
• Dilution
  Dilution is the reduction in an existing shareholder's ownership percentage that happens when a company issues new shares — typically when raising a new round.