Pre-money valuation is what your company is worth just before new investment comes in. Together with the amount raised, it decides how much of the company the new investors get.
Formula
Investor ownership = investment ÷ (pre-money valuation + investment)
Example
An investor puts $1M into your company at a $4M pre-money valuation. The post-money valuation is $5M, so the investor owns $1M ÷ $5M = 20% and existing shareholders keep 80%.
Why it matters for early-stage founders
It is the number that sets your dilution. Understanding it lets you compare offers properly and explain your ask with confidence.
The common mistake
Mixing up pre-money and post-money. A "$5M valuation" means a 20% stake for $1M if it is post-money, but only about 16.7% if it is pre-money. Always confirm which one is meant.
Estimate your pre-money valuation
See a realistic range for your stage and region, and how much you would give up for the amount you want to raise.
Try the valuation calculator