It’s important to understand what pre-money valuation and what post-money valuation are when you’re going out to find capital for your company. Pre-money valuation is the value that you put upon your company that you think it is worth. That value comes from how much you’ve accomplished, how far you’ve taken your business plan, how much of your business is proprietary that other people may not be able to take from you, and how good your management team is. Investors tell you what your real valuation is. If an investor gives you a lower valuation, you can ask them what it is going to take for you to get a higher valuation. The higher your valuation, the less you give away in your company. Pre-money valuation is the value you set on the company. The amount of money that you raise added to pre-money valuation gives you post-money valuation. The bottom line is that you take the money you’ve raised and divide it by post-money valuation, so you know what percentage of the company you are giving away to your investors.
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