Glossary - Pre-Money Valuation
Pre-money valuation refers to the valuation of a company immediately before it goes through a financing round or receives external funding. It is a valuation that does not include the capital infusion which will be received from the upcoming funding round. This valuation is crucial as it determines the share price of the company and how much equity new investors will receive for their investment.
Also known as
- Pre-Financing Valuation
Use cases examples
- Term Sheet: The pre-money valuation of XYZ Startup is set at $5 million, according to the term sheet provided for the Series A funding round.
- Investor Pitch: In our last investor pitch, we presented a pre-money valuation of $10 million based on our current financials, projections, and market analysis.
Considerations for investors
- Investors should conduct thorough due diligence to ensure the pre-money valuation is justified by the company's current performance and potential for growth, to safeguard their investment.
- A lower pre-money valuation benefits investors in terms of getting more equity for their investment, but it should be balanced to not overly dilute the founders, ensuring they remain motivated to grow the business.
Considerations for founders
- Founders should aim for a realistic pre-money valuation that can be justified by their company's financials, market position, and growth potential to attract investors while preserving equity.
- Understanding and negotiating the pre-money valuation carefully is essential as it directly impacts the founder's stake in the company post-investment.
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