Pre-Money Valuation : Definition, Examples, Formula

The pre-money valuation term is basically used in the startup’s valuation, venture capitalist, and Private equity. 

However, A pre-Money Valuation is used for the company’s value or the Startup before it goes Public. 

Pre-Money valuation is determined before any external funding or Financing. 

Simply, the company’s pre-money valuation is determined by the worth of the Company before any investment or funding. 

Additionally, The term Pre-money valuation is used by the investors especially by the venture capitalist and Investors who are not suddenly involved in the startup or a company. 

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Basic Knowledge of Pre-money Valuation. 

So as we read above, the company’s pre-money valuation determines the company’s actual worth before it raises any external funding by the investors or any venture capitalist. It shows the real worth or the rea; the money of the company or startup which gives the ideas to the investors of investing. But the Pre-money valuation can’t be static, it can vary over time. This means the exact value of the company or the start-up can’t be same over the time. 

We can also determine the pre-money valuation; before the Public trade of the company or startup. 

You can also use the Pre-money valuation before any external investment, seed investment, or venture capitalist investment in the company. 

Calculation of the pre-money valuation is very simple. You can calculate your pre-money valuation in a second but to calculate the pre-money valuation you need to know about the post-money valuation of your company or startup. 

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The formula of Pre-money valuation calculation

There are many misunderstand on the calculation of the pre-money valuation of the company or the startup. Here is the exact formula of pre-money valuation. So let’s see how to calculate the Pre-money valuation :

Pre-money Valuation of the company = post-money valuation of the company - Investment amount in the company. 

So, let’s say if the company has a total of $30M Of post-money valuation and the investment amount is $7M then, according to the calculation the pre-money valuation of the company is $23M. 

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Example of Pre-Money Valuation

Pre Money valuation
                                                                Rahul has a pre-money valuation of $25 million.

So, here is the example of the pre-money valuation, Let’s say a man Name Rahul has it’s all shares and profits of the company. He wants some venture capitalist or Investors to invest in his company but before Investing he has 100% Owned profit with the $20M and he also has 400,000 shares

So, let’s say the Investors or the venture capitalist agree to invest $5 Million in the company but in exchange for 20% Stakes or the shares of the company. 

Furthermore, the Pre-money valuation before the Investing is $20M, and the Post money valuation will be $25M.