The investor’s field guide · P
Pre-money valuation
The agreed equity value of a company immediately before new investment in a priced funding round.
Explained by the editorial team
Pre-money valuation is the value placed on a company’s equity before new money enters in a priced round. It helps determine the share price and the proportion issued to new investors. It is a negotiated transaction input, not an independently guaranteed worth.
A worked example
A company valued at £4 million pre-money raises £1 million of new equity. In a simple round with no other changes, the post-money valuation is £5 million and the new investor owns 20%. Existing shareholders collectively own the remaining 80%.
What to examine
Option-pool increases, converting loans, SAFEs and different share classes can change the calculation. Ask what is included in the fully diluted share count and whether any option-pool expansion happens before or after the investment. A headline valuation says little about liquidation preferences or control rights. Compare the complete funding terms and the resulting cap table rather than treating the largest quoted number as the best outcome.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.