What Is Pre-Money Valuation?
Pre-money valuation is what a company is agreed to be worth before a new round of investment money is added.
How it works
In a priced round, the founders and investors agree on a pre-money valuation. The investment is then added to get the post-money valuation. The formula in words: post-money equals pre-money plus the new investment.
An investor's ownership is the investment divided by the post-money valuation. The pre-money number sets the price per share, which is the pre-money valuation divided by the fully diluted shares outstanding before the round. Which shares count as "outstanding" matters, since many term sheets include an expanded option pool in that count.
Example
For example, a company is valued at $4,000,000 pre-money and an investor puts in $1,000,000. Post-money is $5,000,000. The investor owns $1,000,000 divided by $5,000,000, or 20 percent. If the fully diluted pre-round share count is 8,000,000, the price per share is $0.50 and the investor receives 2,000,000 new shares.
Why founders care
A higher pre-money valuation means you give up less ownership for the same money. But a high number is not the only goal. Investor terms, board seats and future round expectations matter too. Valuation is also negotiated, not calculated, and early on it rests on judgment about the team, market and traction.
Common mistakes
- Mixing up pre-money and post-money when comparing offers.
- Ignoring that an option pool increase can be counted inside the pre-money.
- Chasing a high valuation that makes the next round hard to raise.
Frequently asked questions
What is the difference between pre-money and post-money valuation?
Pre-money is the value before the new investment. Post-money is pre-money plus the new money. The same deal can be described either way, so always confirm which number someone is quoting.
How is pre-money valuation decided?
It is negotiated between founders and investors, based on traction, team, market size and comparable deals. There is no single formula. Our valuation guide walks through common approaches.
Related terms
Go deeper
- How to Value a Startup: Methods for Pre-Revenue Companies GuideHow to value a startup before it has revenue: common methods, pre-money vs post-money, and a worked dilution example with round numbers you can follow.
- Startup Funding Stages: Pre-Seed to Series C Explained GuideStartup funding stages explained in plain English: pre-seed, seed and Series A, B and C, what each round is for, what investors expect and how rounds are sized.
All 70 startup terms · More terms starting with P · Guides
General information, not legal, tax or financial advice. Reviewed 11 November 2026.