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A pre-money valuation is a term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing.
External investors, such as venture capitalists and angel investors will use a pre-money valuation to determine how much equity to demand in return for their cash injection to an entrepreneur and his/her startup company.
Example
For example, if an investor makes a $100 million investment into a company in return for 20% of the company's equity, the implied post-money valuation is $500 million. To calculate the pre-money valuation, the amount of the investment is subtracted from the post-money valuation. In this case, the implied pre-money valuation is $400 million.
See also
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