Pre Money Valuation

Key Highlights

• Pre money valuation is what a company is worth just before it gets new investment money.

• To calculate the pre-money valuation, we need to subtract the amount invested from the post-money valuation.

What is Pre Money Valuation?

Pre money valuation is what a company is worth just before it gets new investment money. It’s a key number in startup funding, helping figure out how much of the company new investors will own after they put in their cash.

How It’s Calculated?

To calculate the pre-money valuation, we need to subtract the amount invested from the post-money valuation.

Methods for Determining Pre Money Valuation

• Discounted Cash Flow (DCF): Estimate future earnings and calculate their value today.

• Market Comparables: Look at what similar businesses are worth in the same industry.

• Asset Value: Add up the company’s assets and subtract its debts.

• Negotiation: Founders and investors haggle based on the company’s potential and market trends.

Why It Matters in Investment and Ownership?

• Investor Ownership: It determines the share of the company that investors receive in exchange for their investment. In simple terms, it reflects how much of the business they now own for the money they've put in.

• Negotiation Baseline: Sets the stage for talks between founders and investors, shaping the deal and future ownership.

• Share Price: Helps decide the price of new shares issued in the funding round.