Pre-Money Valuation

Pre-money valuation is the value that the company and a new investor agree on before the new money goes in. Post-money valuation is pre-money plus the investment, and the investor’s ownership is the investment divided by the post-money valuation. A $2 million investment at an $8 million pre-money valuation buys 20% of a $10 million post-money company.

The headline pre-money valuation can overstate what existing holders keep if an option pool is created inside it. The effective pre-money valuation is the value of the existing holders’ shares at the round price, and it is lower by the value of the new pool.