What is pre-money valuation?
Short Answer
Pre-money valuation is the implied value of a company before new investment. It determines how much equity an investor receives for their cheque.
Full Explanation
Pre-money valuation is a critical metric in equity fundraising. It is calculated as: Pre-Money Valuation = (Post-Money Valuation − Investment Amount). Alternatively, if you negotiate a pre-money valuation of £5M and an investor writes a £1M cheque, the post-money valuation is £6M, and the investor receives (£1M ÷ £6M) = 16.7% equity. Pre-money matters because it determines dilution. A founder with 100% of a company valued at £5M pre-money remains with 83.3% after the £1M investment. Pre-money valuations are heavily negotiated and depend on stage, metrics, team, market, and investor demand. Early-stage companies (seed/Series A) are often valued on revenue run-rate multiples (2-10x), user metrics, or comparable transactions rather than earnings. Growth-stage companies (Series B+) are typically valued on revenue or EBITDA multiples. Founders should understand the difference between pre-money and post-money to avoid negotiating errors — a £5M pre-money and a £5M post-money are dramatically different outcomes.
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