Q&A: What's Pre-Money Valuation?

I was just asked by a potential investor for my “pre-money valuation.” I felt foolish and unprepared because I didn’t know what the term meant. Can you help?

You ask an excellent question, and it applies to business owners who are seeking funds from angel investors, venture capitalists, expansion funds or even corporations.

Many angel investment clubs ask for a company’s estimated pre-money valuation in presentation application forms, and you could be asked to provide this information during a business pitch. While most entrepreneurs believe their businesses will be worth millions in the future, your pre-money valuation is what you say is your company’s worth today.

How you reach your pre-money valuation can be based on a broad range of quantitative and qualitative factors, and it will be your job to defend this valuation in negotiations with potential investors.

A post-money valuation is the total of your pre-money valuation, plus funds raised from investors in the current round.

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