Pre-Money vs. Post-Money Valuation

Pre-Money vs. Post-Money Valuation:

Pre-money valuation is the value of a company before raising capital in a new round of financing.

Post-money valuation is the value of a company after raising capital in a new round of financing.

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Here's a simple way to think about it:

Pre-money valuation is the value of your car before you sell it.

Post-money valuation is the value of your car after you sell it and use the money to buy a new car.

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Why is the difference between pre-money and post-money valuation important?

For founders: It's important to know the pre-money valuation so that you can negotiate a fair price for your equity when you raise money from investors.For investors: It's important to know the pre-money valuation so that you can understand how much equity you're getting for your investment and to track the company's valuation over time.

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Here's a quick example:

A startup is raising $5 million in Series A funding. The investors will receive 20% of the equity in the company.

re-money valuation: $5 million / 20% = $25 million

Post-money valuation: $25 million + $5 million = $30 million

So, the pre-money valuation is $25 million and the post-money valuation is $30 million.

It's important to know the difference between the two so that you can negotiate a fair price for your equity or understand how much equity you're getting for your investment.

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Which one is more important?

It depends on who you are. If you're a founder, the pre-money valuation is more important. If you're an investor, the post-money valuation is more important.

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But both are important to understand.