Pre-money valuation is a term used in venture capital and startup financing to refer to the valuation of a company before an investment is made. It is calculated by determining the total value of the company's outstanding shares, minus any debt or other liabilities. The pre-money valuation is then used to determine the value of the equity that will be given to the investors in exchange for their investment.
For example, if a company has a pre-money valuation of $10 million and receives a $2 million investment, the investors will receive equity equivalent to 20% of the company.
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